Unused Credit Cards – To Close Or Not to Close?

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16.3 million consumers in the UK have an average of 2.3 credit cards they no longer use – that’s a total of 38 million cards, with an enormous collective credit limit of £200 billion, according to research from independent price comparison site uSwitch. However, in today’s economic climate, should we be leaving these unused credit accounts open ‘just in case’ or closing them as soon as we switch to a new credit card?

With unemployment on the rise and credit increasingly hard to come by, it might seem like a good idea to keep an old credit card account open as a financial safety net, in case you lose your job, have your application for a new card declined or just ‘for a rainy day’. However, this might not be the bright idea it seems – keeping credit cards you no longer use could have a negative impact on your credit report, and even put you at risk of fraud.

Unused credit accounts can damage your credit rating, because providers look at the total amount you could potentially borrow across all your credit accounts. Therefore credit you aren’t even using, as well as what you actually owe and your repayment history, will be taken into consideration when you’re applying for credit. It’s also worth noting that providers sometimes close down these unused accounts or may even charge a fee to customers who don’t use their cards.

Keeping credit cards you don’t use any more could also put you at risk of fraud. Periods of recession tend to see an uplift in fraud cases, and according to Credit Action, last year alone a shocking £54.1 million was spent by fraudsters on lost and stolen credit cards and another £10.2 million on cards intercepted in the post. This type of fraud could go undetected on credit card accounts that you aren’t checking regularly – particularly if you move house and forget to notify the card provider of your new address.

Here are five tops tips to help you avoid the credit card closure trap.

  1. Check your credit report – it will show you all your credit accounts and could alert you to an old credit card you’ve forgotten about. It’ll also help you to spot unfamiliar credit applications and unexplained balances, which could indicate that you’ve been a victim of fraud.
  2. Close down accounts you don’t use, particularly if you’re applying for credit – the available balance on these accounts will be taken into consideration when you are applying for a new card. You don’t necessarily have to close all your old credit cards – but if you’ve got more than one or two, a spring clean could be a good thing.
  3. Sometimes, the best deals on the market are only available to new cardholders, and by canceling your existing credit cards, after a short period you should be able to qualify as a ‘new cardholder’ again.
  4. Cutting up a credit card isn’t the same as us cancelling it. Cutting up a card might stop you from using it, but you also need to contact the card company and tell them you want to cancel. It’s also a good idea to request a written confirmation of your cancellation too.
  5. Sometimes, even though you’ve cancelled your card the account may not be closed. Credit card companies sometimes leave accounts dormant for a while in case any payments you’ve made haven’t come through yet, so it’s worth making a call a few months later to double check it’s really closed.

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