Do you have an unused credit card lying in your wallet? You’re not alone. Many people hold on to credit cards they no longer use, either because they forget about them or feel they might need them someday. However, is keeping these unused credit cards a wise financial decision? Let’s explore whether you should cancel your credit card if you don’t use it any more and discuss the pros and cons of cancelling a credit card.
Reasons to Cancel an Unused Credit Card
1. High Annual Fees
If your unused credit card charges a high annual fee, it may be a good idea to cancel it. Paying an annual fee for a card you don’t use is like throwing money down the drain. For instance, if your card has an annual fee of ₹3,000, and you haven’t used it in the past year, you’ve essentially paid ₹3,000 for no benefit. Cancelling such a card can save you money in the long run.
2. Simplify Your Financial Life
Managing multiple credit cards can complicate finances. By cancelling unused credit cards, you simplify your financial life and reduce the chances of missing payments or falling into debt.
3. Avoid Temptation to Overspend
An unused credit card, especially one with a high credit limit, can tempt you to overspend. If you struggle with impulse spending or relying on credit for unplanned purchases, cancelling the card can eliminate this temptation, helping you stick to your budget and avoid debt.
Reasons to Keep an Unused Credit Card
1. Maintain Credit Utilisation Ratio
Your credit utilisation ratio is the amount of credit you’re using compared to your total available credit, which impacts your credit score. Ideally, you should keep it below 30%. Closing an unused credit card account reduces your available credit, potentially increasing your credit utilisation ratio and lowering your score. Before deciding, ask yourself, “Should I cancel unused credit cards?” and consider the impact on your score.
2. Preserve Length of Credit History
The length of your credit history is another important factor in your credit score. Closing an old credit card account can shorten your average credit history and potentially lower your score. If your unused card is one of your oldest accounts, it may be worth keeping it open to maintain a long credit history.
3. Keep Rewards and Benefits
Some unused credit cards offer perks such as airport lounge access, travel insurance, or purchase protection. If you anticipate using these benefits in the future, keeping the card might be worth it, especially if it has no annual fee.
Factors to Consider Before Cancelling
Before you decide to cancel your unused credit card, consider the following factors:
- Credit Score Impact: Cancelling a credit card can affect your credit score by increasing your credit utilisation ratio and shortening your average credit history. Use a credit score checker to assess your current score and determine if closing the card is likely to have a significant impact.
- Rewards and Benefits: If your card has accumulated rewards points or miles, redeem them before cancelling. Also, think about whether the card’s benefits might be useful in the future.
- Annual Fee: If your unused credit card charges a high annual fee, cancelling it could save you money. However, if the benefits outweigh the fee, it may make sense to keep the card.
- Alternative Options: Instead of cancelling, consider downgrading to a no-annual-fee version or negotiating with your issuer to waive the fee. This way, you can keep the account open without incurring costs.
How to Cancel Your Credit Card
If you’ve decided that cancelling your unused credit card is the right move, follow these steps:
- Redeem Rewards: Use any accumulated rewards, points, or miles before closing the account, as you may lose them once the card is cancelled.
- Pay Off Balance: Make sure your card balance is zero before initiating the cancellation process. Pay off any remaining balance or transfer it to another card.
- Contact Card Issuer: Inform your issuer’s customer service of your decision to cancel. They may try to persuade you to keep the card by offering incentives or waiving fees. Consider these offers carefully before proceeding with the cancellation.
- Confirm Cancellation: After cancelling, request written confirmation to avoid any future confusion.
- Update Automatic Payments: If any recurring payments are linked to the cancelled card, update them to avoid service disruptions.
- Monitor Credit Report: After cancelling, check your credit report to ensure the account is marked as closed.
When to Keep Your Unused Credit Card
While cancelling an unused credit card can make sense in some situations, there are times when keeping the card open may be more beneficial:
- No Annual Fee: If your unused credit card doesn’t charge an annual fee, there’s little harm in keeping it open. It can help maintain your credit utilisation ratio and credit history length without costing you anything.
- Old Account: If the unused card is one of your oldest accounts, closing it could shorten your credit history and potentially hurt your score. In this case, keeping the card open may be a better option.
- Emergency Backup: An unused credit card can serve as a backup in case of unexpected expenses. Keeping it as an emergency safety net might be worthwhile, particularly if it has no annual fee.
- Future Use: If you anticipate needing the card’s rewards or benefits soon, such as for a trip or large purchase, keeping it could be worth it—provided the benefits outweigh any fees.
Summing Up
Deciding whether to cancel your unused credit card depends on your financial situation and goals. Cancelling an unused credit card can simplify finances, save money on fees, and reduce overspending. However, it may impact your credit score by increasing your credit utilisation ratio and shortening your credit history.
Carefully assess the card’s fees, rewards, benefits, and credit score impact before deciding. If you choose to cancel your credit card, follow the right steps to avoid negative consequences.
If you’re looking for a new credit card that better suits your needs, explore the credit card options from Airtel Finance. With attractive rewards, benefits, and seamless digital services via the Airtel Thanks app, you can find the perfect card for your financial goals. Plus, check your credit score for free with Airtel before applying.
FAQs
- Will cancelling my unused credit card hurt my credit score?
Cancelling an unused credit card can potentially hurt your credit score by increasing your credit utilisation ratio and shortening your average credit history. - Should I cancel a credit card with a high annual fee?
If your card has a high annual fee and no valuable rewards or benefits, cancelling it can save you money. If the perks outweigh the fee, it might be worth keeping. - Is it better to keep old credit cards open?
Keeping old credit cards open helps maintain a long credit history, which is beneficial for your score. If the card has no annual fee, it’s typically best to keep it open. - How many credit cards should I have?
There’s no one-size-fits-all answer to how many credit cards you should have. It depends on your individual financial needs, spending habits, and ability to manage multiple accounts responsibly. - What should I do with rewards points before cancelling a credit card?
Redeem any accumulated rewards, points, or cashback before cancelling your card to avoid losing them.
