Cutting up your credit card might be a smart move for you—but it might not. Just because you’re not using your credit card anymore doesn’t necessarily mean that it’s a good idea to get rid of it.

The effect of canceling your credit card

Canceling your credit card can affect your credit score in three ways:

Credit-card utilization ratio

Your credit-card utilization ratio is the ratio of the total balance on your credit cards to the maximum amount of credit you have available to you (the sum of all your credit limits put together).

For example, if you have a $500 credit card limit on three credit cards, you have a total limit of $1,500. If you have a balance on two cards of $250 each, you have a ratio of $500 to $1,500 (33.3 percent). If you decide to cancel one of those cards, your bottom number changes so your ratio increases. It would now be $500 to $1,000 (50 percent).

Your credit card utilization rate measures your balance to your credit card limit. If you change the limit by canceling your credit card, your limit goes up, which is a bad thing in the eyes of FICO.

Related: How to Use a Credit Card Responsibly

Average age of accounts

The number of different accounts that you have factors into your credit (at about 15 percent of your score). If you cancel your credit card, this will affect your credit negatively over time because it will eventually drop off your credit history.

Number of accounts

The average number of accounts that you have open contributes to your credit score. If you cancel a card, you will lower this number.

If you have an excessive number of cards that are adding to your debt instead of utilizing it responsibly, you should consider closing some cards.

However, old accounts remain on your credit history for 10 years. So, you won’t see the effect of canceling your credit card in terms of lowering the number of accounts for 10 years.

When should you cancel your credit card?

Because canceling your credit card can negatively affect your credit, is there ever a good reason to cancel a card completely?

The answer is yes.

In certain circumstances it’s more valuable to cancel your credit card than to keep it open. You should cancel your credit card if:

You have a debt problem that you cannot control

If you are in debt and are having trouble paying off your credit cards every month, then it may be a good idea for you to cancel your credit card. It’s more important to get out of debt and have financial stability than it is to have perfect credit. Most likely, if you’re struggling in debt, you don’t have perfect credit anyways.

Related: Pay off Credit Card Debt Fast with This Simple Tool

While canceling your credit card may have a negative effect on your credit, it may be worth it if it means you don’t use your credit card anymore.

Alternatively, if you’re able to keep it open and not use it or pay it off every month that would be better.

You are paying high fees

If you are paying high fees (or any fee at all, arguably), cancel your credit card. There are so many credit cards available without fees that it doesn’t make sense for you to have a credit card with fees.

Related: Should You Ever Pay A Credit Card Annual Fee?

Summary

Because canceling your credit card can have a negative effect on your credit, it’s important to think it through very carefully, weighing the pros and cons, before you go through with canceling it.

But just because canceling a credit card can negatively affect your credit doesn’t meant that it’s always a bad idea. If you are struggling to get out of credit card debt or paying high fees on your credit cards, then it may be smarter for you to cancel your credit card.

Read more:

  • When to get a credit card, when to use it, and when to cut it up
  • Why And How To Request A Credit Limit Increase 
  • How to Improve Your Credit Step by Step
  • How to Build Credit the Right Way