Do you have a credit card you don’t use or a card with an annual fee you don’t want to pay anymore? You may be wondering to yourself, “should I cancel a credit card I don’t use?” Maybe you’ve been thinking about your credit score and how it may be impacted. Perhaps you didn’t even know there was another option for your unused credit card!
Well you’re in the right place because I’m going to walk through your three options on managing unused credit cards: keep, downgrade, or cancel.
Why should you keep reading? As someone who studies travel hacking best practices and has been building strong personal finance health on my own, I have spent hours scouring the best financial advice online to bring this answer to you and simplify it so you can answer this question for yourself, “should I cancel a credit card?”
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When Should I Cancel a Credit Card I Don’t Use?
So you’ve got a credit card in your wallet that you haven’t used in months, maybe years. You’ve heard some financial advisors warn you to stay away from credit cards, so now you’re panicking, wondering, should I cancel a credit card I don’t use to protect my credit score?
Let’s start by saying, if you’re having serious financial trouble and you’ve found yourself compiling credit card debt, then YES, maybe you should consider canceling your credit card as soon as it’s paid off.
There are a lot of things that happen in life and being tied to a credit card you shouldn’t or can’t have anymore, should not be something you lose sleep over.
However, there are credit score implications to consider when you cancel a card – we’ll get into this later – but you should only take a temporary hit from closing.
If you keep reading, you’ll learn about the times it’s okay to keep a card, how to downgrade a credit card, and when it’s recommended to cancel the credit card.
When to Keep Your Credit Card
If the card in question has a $0 annual fee, always keep it open! Never close a credit card you don’t have to close – even if you don’t use it anymore. I shudder to think of the credit cards I closed as a naive young adult because I thought I was being financially smart! Closing a credit card will ding your credit score – it will be especially hard if you close a card you’ve had for a long time. The age of credit and the amount of credit utilization will decrease/increase respectively when you close a card. This change will bring down your credit score. See my beginner’s guide here if you need a refresher on credit score factors.
If the card does have an annual fee, ask yourself if the card’s benefits outweigh the cost of keeping the credit card. The Chase Sapphire Preferred® is a good example of this. Many people agree that this card offers a wealth of benefits, especially for those who travel hack! Check out the Chase Sapphire Preferred benefits here.
When to Downgrade Your Credit Card
So, what does it mean to downgrade? Downgrading is an option you can take if you’ve had a card for a while and you don’t want to bring down your average age of accounts by canceling. Downgrading is also an option if you’re ready to be more advanced and want to try to earn a card’s sign up bonus twice.
An example of downgrading would be calling the bank to change your Chase Sapphire Preferred to a no-fee card like the Chase Freedom® Unlimited.
Here are times you should choose downgrading:
– You’ve had the card for a long time but don’t want to pay the annual fee anymore. To avoid impacting your average age of accounts, you downgrade the account.
- You don’t want to close too many accounts/credit cards at the same time, so you choose to downgrade a few cards.
- You want to earn a certain card’s sign up bonus again but you can’t apply since you currently have the card.
When to Cancel Your Credit Card
Ok, so you’ve reached the point that you’re just ready to cancel your credit card. Here are some reasons canceling your card is a good idea for you:
- You can’t justify the annual fee and there isn’t a no-fee card you can downgrade to.
- You know you want to apply for a sign up bonus again but there is no card to downgrade to – you should keep the card for a year, and after canceling you may have to wait 24+ months from the time you received the first sign up bonus to apply again.
- You called the bank and they offered a retention bonus but you don’t feel the offer is worth keeping the card and paying the annual fee.
Let’s chat about retention offers. Something you’ll find talked about widely in the travel hacking community is the practice of calling your card’s bank and speaking with someone from the retention department. Often, you’ll find that banks will make offers to keep your business – this can range from waiving the annual fee to offering you points if you spend a certain amount on the card.
I recommend calling the retention department first before pulling the trigger on canceling a card.
So, should I cancel a credit card I don’t use?
The point of travel hacking is to save yourself some money and make traveling more possible. Like I mentioned before, only you know your financial situation and only you can make the financial decisions for yourself. However, the recommendations still stand that if the card has no annual fee, you should avoid canceling and if the cards with an annual fee are still showing value, you should keep them.
Hopefully this has helped you answer the question, “should I cancel a credit card I don’t use?” Remember to play the travel hacking game safely and always protect yourself from rash decisions!
