Should You Close Your Low-Limit Credit Card? 

Here’s the Real Deal

Ever find yourself staring at that dusty, low-limit credit card in your wallet, wondering, “Why do I even have this thing?” Maybe it’s got a $500 limit you’ve long outgrown, or it’s attached to a store you no longer shop at (looking at you, Target RedCard). You might be tempted to call it quits, but wait—before you slice it up, let’s talk about the impact on your credit score and your financial future.

Spoiler: Closing it could hurt more than help.

Why Closing a Credit Card Feels Right (But Might Be Wrong)

It’s tempting to simplify your finances by getting rid of unused credit cards. Who doesn’t love Marie Kondo-ing their wallet? But with credit cards, tidying up can get messy—especially if you don’t understand how credit scores work.

Here’s what happens when you close that card:

1. Your Credit Utilization Takes a Hit
   Credit utilization is the percentage of your total credit limit that you’re using. If you close a low-limit card, you reduce your total available credit. This makes your utilization rate jump (not in a good way).
   Example:
   Let’s say you have two cards:

   • Card A: $5,000 limit, $1,000 balance

   • Card B: $500 limit, $0 balance

2. Total limit: $5,500
   Total balance: $1,000
   Utilization: ~18%
   Now, close Card B. Your limit drops to $5,000, but your balance stays the same. Utilization jumps to 20%, making you look riskier to lenders. And yes, even a small jump like this can ding your credit score.

3. Shorter Credit History Hurts Your Score
   Length of credit history is another key factor in your score. Even if your low-limit card isn’t your oldest account, closing it can reduce your average account age over time. Credit scoring models like FICO and VantageScore prefer seasoned accounts—kind of like how you’d rather hire a babysitter with experience, not one who just learned what “diaper rash” is.

4. You Lose a Backup Plan
   Emergencies happen. Having an extra card, even with a low limit, can be a safety net. Plus, keeping it open with minimal use can help pad your score and provide peace of mind.

When It’s OK to Close a Low-Limit Credit Card

So, should you never close a card? Not exactly. Here are a few scenarios where shutting it down might make sense:

• You’re Paying an Annual Fee That’s Not Worth It
  If your low-limit card comes with a yearly fee but offers no benefits (looking at you, generic airline card from 2014), consider closing it—just weigh the potential impact on your credit score first.

• It’s a Store Card You No Longer Use
  Store cards often come with high interest rates and low credit limits, making them less valuable once you stop shopping there.

• You’re Overwhelmed Managing Multiple Accounts
  Simplifying your finances can be worth the trade-off, especially if you’re struggling to track due dates or payments. Just make sure to keep your oldest and highest-limit cards active.

How to Close a Credit Card the Smart Way

If you’ve decided that closing your low-limit card is the best move, follow these steps to protect your credit score:

1. Pay Off the Balance
   Don’t close a card with an outstanding balance—it’s like quitting your job before payday.

2. Redeem Any Rewards
   Some issuers cancel unused rewards when you close your account. Use them up before pulling the plug.

3. Call the Issuer
   Confirm there’s no pending balance or fees, and notify them you want to close the account.

4. Monitor Your Credit Report
   Check your report to make sure the account is marked as “closed by consumer,” which looks better to future lenders.

Final Verdict: Should You Close It?

If the card has no fees, doesn’t tempt you into debt, and contributes to your total credit limit, keep it open! Use it for small purchases occasionally (a Netflix subscription, gas, or your monthly “treat yourself” coffee) to keep it active and in good standing.

But if it’s costing you money or you’re juggling too many cards, closing it might be worth the hit—just make sure you’ve weighed the pros and cons first.

Closing a credit card isn’t just about convenience—it’s about strategy. So, the next time you’re tempted to declutter, remember: your credit score might thank you for holding onto that low-limit card just a little longer.

Stay savvy (and keep those cards open responsibly),
Caleb Hammer