Should you cancel a store credit card?

Highlights

• Before canceling a store credit card, you may want to ask yourself a few questions to help you decide if it’s the right route for you to take.
• Closing a store credit card may impact your credit score.
• Making regular payments on time to your credit cards and using them wisely can help you improve your credit score and potentially receive approvals on future lines of credit.

Whether you are considering closing your store credit card because you’re using it too much or not at all, it may be helpful to ask yourself if closing the card will benefit you in the long run. In this article, you will learn about the different factors you should consider before you cancel your store credit card.

Questions to ask yourself about your store credit card

Closing a store credit card can have a negative impact on your credit score, so you may want to think about the pros and cons before taking any action. If you’re on the fence about canceling your store credit card, the following questions may help you decide what your next step should be.

Does having a store credit card lead to you spending more?

While store credit cards can help you build credit and earn discounts and rewards, you may want to ask yourself if having the card is making it tempting to spend more than you’d like to.

Store credit cards can come with one or more than one of the following:

• Potential to earn cash back
• Earning points or rewards that can be redeemed for future purchases
• The ability to improve your credit score if you make payments on time

If you find that you’re overspending to make your monthly payments, closing the card as a way to limit your opportunity to spend could be a good idea.

Since you know your spending habits best, take a moment to look at your purchases and monthly statements. Are you overspending? Are you able to make the payments on time, or are you accruing debt and interest? Asking yourself these questions about your spending habits can help you decide if you should close a store credit card.

Would a higher credit limit benefit you?

Another question you may want to ask yourself is whether a higher total credit limit will benefit you or not, since your store credit card will sum towards your total credit.. Does having a higher credit limit mean you will make more purchases? If you feel that you can’t make payments on time or keep up with your current monthly payments, having a higher credit limit may not be the solution.

On the other hand, if your purchases remain about the same, or if you regularly keep your card at a zero balance, having a store credit card could lower your credit utilization ratio. This could help improve your credit score over time. Before you close your card, think first if you may want to use it as a way to help improve your credit score—having the added available credit from this card could help you with this in the long run if you don’t use that available credit or if you pay it off.

Do you feel the need to have the additional credit card?

Think about how many credit cards you currently have; would opening this particular store credit card be beneficial to you? If you shop at this store frequently, it may be worth keeping a store card so that you can access more opportunities for rewards, discounts and other perks that come with using the store card.

Does canceling a store credit card hurt your credit?

Canceling a store credit card can hurt your credit score. Because credit scores are determined by several factors including credit mix, credit utilization ratio and payment history, closing an account can impact these factors and, in turn, negatively affect your credit score. However, keeping a store credit card open could make it possible to over-utilize or increase your debt, which could hurt your credit score.

• Credit mix: Closing your account could impact your overall credit mix by showing less diversity in your portfolio.
• Credit utilization ratio: This ratio is the amount you spend against your total credit limit, and is an important factor when calculating your credit score. Ideally it should be about 30% or lower. This ratio shows credit card issuers the amount of credit you use to live. When you close a store credit card, your total credit limit will decrease, so if you continue spending the same amount your credit utilization ratio will rise.
• Payment history: Another important factor that determines your credit score, payment history is key to developing a good history of your responsibility to make payments on time. Removing a store credit card could take away opportunities for you to show positive payment history over time.
• Length of Credit History: A long credit history has a positive impact in your score. If your store credit card account is your oldest one, you might consider keeping it open as long you can make pay its balances in full and in a timely manner.

As you can see, closing a store credit card can affect several factors that are used to generate your credit score. Unless you have a good reason to close your store card, it may be helpful to keep the account open.

Note that there are several other factors that impact your credit score. To learn more about these, you can enroll in Chase Credit Journey^®, a free online tool packed with resources that anyone can use (no Chase account necessary) to better understand credit. You have access to your free credit score and can set up a personalized action plan provided by Experian™ that gives you actionable steps to help you improve your score.

What happens if I stop using a store credit card?

Not using the card but keeping it open might increase your total credit limit towards having a good credit utilization ratio and help your credit history. It’s important to note, however, that if your credit card remains inactive for an extended period of time (about two years, depending on your credit card issuer), your lender may choose to close the account. This can hurt your credit score for reasons mentioned above.

Can store credit cards earn you travel rewards?

If you’re a frequent traveler and want to maximize your spending, you might want to find out if your store card can earn you travel-related rewards before closing it. A store credit card may give you the opportunity to earn points that can go towards your future trip. Even if you don’t use the store card often, the benefits that come with it may make keeping the card open worth it.

In conclusion

As you can see, closing a store credit card can have negative impacts on your credit score. You can keep your store credit card open and make a few purchases with it now and then this might positively impact your credit history, payment history (if you pay off your balance in time), credit utilization ratio and credit mix.

However, if you find that you’re regularly missing your payments and accruing interest on your store card, closing your account might be a sensible option to help you get back on track with your financial goals and towards building your credit score.