I’ve been meaning to make a thread on this, and @icon has helpfully led right into it in a reply to me in the linked thread quoted just above. Rather than clutter that thread with a digression, I’ll start afresh here.
TL;DR: As a general matter for all of us consumers, when and why is it advantageous or disadvantageous to close unused credit cards vs. keeping them open but unused? How does the answer change when considering the short term vs long term impact on our credit scores? How does the answer change depending on whether the cards at issue are a large or small fraction of your total other credit?
Long form; very long form ;)
I have many credit cards. ~20. And a great credit score. And except as noted below, carry no balances on any of them.
A few of the cards are ancient with high credit limits that I don’t use, but choose to keep open for standby use, and because the high limits and great longevity contribute to a stronger credit score than without them. Seems easy & smart enough to do.
OTOH, I also have a few store-affiliated cards that were / are essentially one-time use, where I opened them to obtain either a big discount on a large initial purchase, or that came with a “0% APR for X months” come-on that let me costlessly spread a big purchase across a long run of minimum (read “negligible”) payments, finishing with a big balloon payment whenever the X months runs out. In general these cards have low credit limits, but were also charged up close to their low limits when I first got them. These cards’ credit limits are collectively about 10% of my total credit limit.
Over the last few and next few months they’re all going to hit their various X months cutoffs and will be paid off in full. After which I have little to no likelihood of buying much more stuff from those stores.
So, from the perspective of my credit score, what should I do with those cards once paid off? Close them or keep them? If closed, my total available credit goes down, but my total utilization will still be zero and I have fewer open lines of unused credit. If left open my total credit and credit utilization stays the same, but I have more open lines of credit which can be seen as negative. How much credit is too much credit? I don’t know what the credit score implication of an account closing is all by itself: good or bad?
It seems like there are really two questions here: what are the short term and what are the long term consequences of either choice? I’m not greatly concerned about the short term; I have no impending needs to apply for a car loan or mortgage, and I’ve got plenty of consumer credit, so any additional future cards I get will be to access different promo come-ons.
But speaking to the long term credit score, would I be better off with just fewer larger generic cards, or with these smaller cards still in place too?
And how long is the long term? I was amazed to see reporting agencies issuing a 24 month ding on my credit because of hard credit score pulls. Which were pulled as part of applying for the cards I’m talking about that the credit scoring agencies already know about. Seems illogical. They know that I applied, they know the credit was granted, and how much. So they know the duration of that creditor and can compute / adjust my score accordingly. So why does the successful application count against me? It’d make sense that if there were denied applications in my history, those would count against me, but there aren’t.
That part is just because they don’t want someone to open too many accounts in quick succession (and then max them all out, possibly without the ability or intent to pay them back).
As for the other cards, are any of them from the same bank (like Chase or whatever), even if they’re store or airline or whatever co-branded cards? If so, you can usually transfer their credit limit to the oldest card you have with that same bank, thereby keeping the credit history and limit but having fewer cards overall.
As far as I know, your credit utilization (percentage of your overall limit) and history matter far more than the # of cards you have open. If your credit is already high, it won’t make much of a difference either way. I’ve also never noticed a ding from closing an unused card, assuming my credit limit stays the same (ie I transferred it first).
There are various simulators you can use to see what might happen if you close or consolidate some. But there are also different scoring algorithms used by different agencies and banks, so it’ll never be quite exact.
There is also an understanding that a lot of hard pulls within a certain amount of time, count as essentially one, because that happens when you are car shopping and different dealerships will be doing the pull. If you have multiple hard pulls spread out during a year, it could indicate that you are seeking additional credit because of low cash flow, regardless of whether you received a new credit card or not. Since no reason is given as to why you were given credit, the only data point is that someone thought it important enough to do a hard check on you.
Your credit history does not get transferred to an existing card. You can ask for a credit increase on a particular card justifying it by saying you are closing one, and they might accept that, but the credit history itself does not transfer. What happens when you cancel a card is that it shows up as a closed account on your credit report and the corresponding total credit available decreases. From what I can tell, there is no reason given for the account closing (e.g. whether the bank did or you did), but what is preserved is whether it was being paid on time which is what most creditors are interested in.
Also, you should cancel newer credit cards rather than older ones because of the aforementioned credit history. Having a card for a long time with on time payments, which is what it looks like even if you don’t pay because it has a zero balance, shows responsibility. That is not to say you should not cancel any old cards, but that you should keep a few of the old ones around.
Speaking of which, the one time that credit history can be transferred to some extent, is when you add an authorized user to your credit card. Then the limit and history of that credit card shows up in their credit report as well. This is one way you can help someone rehabilitate their credit, or your child build one before they are 18, so that they can get their own loan or credit at a more favorable rate than someone just starting out.
I had a credit card canceled by the bank because I didn’t use it for more than one year. Is my experience unusual? The credit limit was enough for 2 international business class flights and a bit more.
I’ve canceled all store credit cards which are not also VISA or MC, because they can only be used in that one store. And I prefer things simple, so having scads of credit cards, just because I can, is not for me.
Which doesn’t help at all for the question about the credit score. When there’s enough credit to cover a really busy month times two, that would be enough for me. Anything else is yet another password to keep track of, bill to watch, especially with so many card numbers getting stolen.
About every 2 years the issuers for my old now-unused cards send out an email: “We’ll cancel your card for nonuse unless you use it in the next 2 months.” So I buy dinner on it once and the timer resets for another two years.
So yes, IME / IMO cancellation for nonuse is common. But at least for my issuer(s), they give me a warning first. Does every issuer? No clue. Your experience would suggest not.
I’ve given up caring that much about my credit score. I opened a new credit card, nothing good happened even though my available credit went up by a fairly large percentage (I only have two other cards). I used the card for 2 years, paid it off whenever I used it, which wasn’t often, then canceled it. My credit score went down 13 points (802 to 789). It seems to me that the credit score system is designed to tempt users to open multiple accounts, use them, and pay them off. That benefits no-one but credit card companies. (I fully expect this is stale news to most people; it has been pointed out to me that sometimes I like to state the obvious.)
I prefer to use a credit card rather than a debit card for various reasons which have been often discussed on this board. Mostly I like the float – the protection of being able to keep a certain amount of extra cash and not run the risk of spending it down too far, at the possible expense of having to pay interest charges if I have charged too much. Which just doesn’t happen any more, barring horrific emergencies.
After years of having horrible credit, I eventually got a card about 7 or 8 years ago. I have six cards now and a credit score around 790, but that card has, by far, the oldest history. I’m reluctant to cancel it, despite its horrible terms, because it would knock at least a couple of years off of my credit history. If history is in fact one of the most significant factors in ones credit score, I fear it might take a while to recover from. Am I correct?
Definitely not. My wife had a card that had been sold a half-dozen times (including at least two stints with the same issuer) and got a “We’re closing this, don’t bother appealing”. She’d had it over 20 years and paid it off every time, but had stopped using it because she’s housebound and really didn’t need it. So we didn’t much care, but it seemed odd not to have said “Hey! Dontcha wanna use your card?” first. Her credit score is VERY high.
My understanding is that closed accounts stay on your credit reports and continue to contribute to the average age (in whatever direction) for a substantial period of time. I think for ten years.
That has not been my experience. I had just one credit card for several decades and about 5 years ago I canceled it because of some terrible customer service experiences. I opened a new card at the same time. Nevertheless my credit score plummeted, I think by about 50 points, and has not yet fully recovered. My credit reports always say the biggest issue is my credit age.
I was in the finance world a lifetime ago. Back then, cancelling a card was viewed a negative. If you aren’t using it, don’t worry about it. The issuer will shit-can you when they see fit, usually never. In the meantime, having existing lines of credit that are unused don’t really count against you.