I talk a lot about opening credit cards, but not as much about closing them. Every once in a while, I’ll get the question, “After I’ve earned my sign-up bonus from the credit card, do I need to keep it open if I don’t plan on using the card again?” The answer is…it depends.
Regardless of whether you will ever use the card again, I advise keeping it open until your bonus posts, plus possibly a few months afterward, to keep a vindictive bank from pulling the bonus back. I’ve never had a bonus reversed, but it’s not completely out of the question and there may actually be something in the terms and conditions of the card that would allow the credit card company to do so.
My rule is this: If a card has an annual fee, I close it before its anniversary so I don’t pay that fee. The benefits of open credit lines don’t offset a lifetime of fees. If it doesn’t have an annual fee, I leave it open.
Leaving a card open may seem counterintuitive, but it should actually benefit your credit score.
Your FICO (credit) score depends on a number of factors, including total utilization and average length of credit history.
The first part, amounts owed, measures how much you owe as a percentage of your total outstanding credit lines available. So if you have two credit cards with $10,000 limits on each but only spent $2,000 total, your utilization would be 10% ($2,000/$20,000). Open credit lines increase the denominator. This factor makes up 30% of your score.
Your length of credit history is worth 15% of your credit card. It measures how old your oldest card is, as well as an average of all accounts, past and present. The longer, the better.
Nothing comes without risks. Here are two that stand out:
First, credit cards sitting around doing nothing leave themselves open to being stolen or used fraudulently. So if you are keeping a card but don’t plan on using it, cut it up.*
Second, even if you never use your cards and your utilization is in single-digits, you may eventually run into a nervous bank or find your credit lines on new cards coming in much lower than your existing cards. Just keep your eyes open.
The Bottom Line
Even if you have earned your sign-up bonus, you may want to leave the credit line open. Do what’s right for you.
*This rule does not apply to the Chase Sapphire, which is made of metal. I once tried to cut mine with scissors and ended up breaking the scissors.
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