Why Unused Credit Cards do not Hurt your Credit Score

Many people have old and unused credit cards and consider closing the accounts down and chopping the cards. However this can be a big mistake as whilst having unused credit cards will not have a negative impact on your Fico score, closing them will. Although you may be tempted to close down unused cards to remove temptation there are several reasons why this is a bad idea.

One of the key components in your Fico score is the length of credit history and this is represented by the oldest credit card you have, whether you use the card or not. If you close an old and unused credit card it will bring your credit score down, whereas if you have several cards and close the newest one it will have less impact.

However some card issuers are now introducing dormant card fees or inactivity fees, and levy a charge on unused cards. If this happens on your oldest card then you should aim to use it at least once a quarter and pay the balance off in full, and thus avoid the charge.

Another reason why you shouldn’t close down unused credit cards is because of the credit to debt ratio they represent, which is heavily factored into your Fico score. If you have an unused card with a credit limit of $1000 this works in your favor. The Fico score is influenced by how much of your available credit you use and the recommended amount is no more than 30%.

As an example if you have two cards each with a $1000 limit and carry a zero balance on one and a $500 balance on the other then you are utilizing 25% of your credit, which is scored highly. If you close the unused card your available credit drops to $1000 and your credit to debt ratio is suddenly 50% which is perceived as riskier and thus lowers your credit score.

Thus retaining unused credit cards will not hurt your credit score but closing them down will. However if you do prefer to close some unused cards make sure you retain the oldest one as it represents the crucial length of your credit history. Never close any cards down prior to applying for loans or a mortgage. If you prefer to close them then do it gradually and those who don’t carry balances will only experience a temporary slide in their credit rating by doing so.