You open your mail and see the annual fee posted to your credit card statement. The question hits immediately: should you keep this credit card or close it? This decision affects more than just your wallet. It influences your credit score, your available credit, and your long-term financial flexibility.
Whether you’re evaluating a card you’ve held for years or one you recently acquired, understanding the factors that matter helps you make an informed choice. Let’s examine when to keep a credit card open, when to close it, and what alternatives exist between those two options.
When to Keep a Credit Card Open
Several scenarios favour keeping a credit card active, even if you rarely use it. Your credit history, available credit, and card benefits all play a role in this decision.
The Card Has No Annual Fee
Cards without annual fees cost you nothing to maintain. Keeping them open preserves your credit history and available credit limit without ongoing expenses. If the card sits unused, consider setting up a small recurring payment to prevent the issuer from closing it due to inactivity.
Some no-fee cards offer modest rewards on everyday purchases. Even if you use the card only occasionally, these benefits add value over time. Explore our guide to no annual fee credit cards to see which options deliver the most value.
It’s Your Oldest Credit Account
The age of your credit accounts significantly influences your credit score. Canadian credit bureaus, TransUnion and Equifax, consider both the age of your oldest account and the average age of all your accounts when calculating your score.
When you close your oldest card, its positive history remains on your credit report for up to 10 years before disappearing. Once it drops off, only your newer accounts remain, which could lower your credit score. Keeping that older card active continues building history indefinitely.
The Card Has Your Highest Limit
Your credit utilization ratio compares your total credit card balances to your total available credit. Lenders and credit bureaus prefer to see this ratio below 30%, with ratios under 10% providing the strongest benefit to your credit score.
If you have two cards with $10,000 limits each and carry $4,000 in balances, your utilization sits at 20%. Close one card, and your utilization jumps to 40% on the remaining $10,000 limit. This increase could reduce your credit score, even if you haven’t borrowed more money.
- No annual fee: Zero cost to maintain the account and preserve your credit profile
- Oldest account: Continues building credit history that supports your score long-term
- High credit limit: Keeps your utilization ratio low even if balances fluctuate
- Unique benefits: Offers perks you use occasionally, such as travel insurance or purchase protection
- Low balances: You pay the balance in full each month and avoid interest charges
When Closing Makes Sense
Sometimes closing a credit card aligns with your financial goals, particularly when the costs outweigh the benefits or when the card tempts overspending.
The Annual Fee Exceeds Value
Premium cards often carry annual fees ranging from $120 to $599 or more. If you’re not using the card’s benefitsâairport lounge access, travel credits, insurance coverageâthat fee becomes a pure expense. Calculate the value you actually extract from the card each year and compare it to the fee.
For example, a card with a $139 annual fee might offer 4% cash back on groceries and gas. If you spend $3,000 annually in those categories, you earn $120 in rewards, which doesn’t cover the fee. In this case, switching to a no-fee alternative could save you money.
You Struggle With Overspending
Available credit can tempt impulsive purchases. If you find yourself carrying balances month to month and paying interest rates that average between 20% and 30% in Canada, reducing your available credit might help you regain control.
Recent data shows that one in three Canadians cannot pay off their credit card balance each month, and nearly half report living paycheque to paycheque. If you’re in this situation, closing cards you rarely use removes the temptation to accumulate more debt.
The Card Is Relatively New
Closing a card you’ve held for less than two years has minimal impact on your credit history. If the account doesn’t serve your needs and carries an annual fee, closing it won’t significantly affect the age of your credit profile, especially if you maintain older accounts.
- High annual fee with low usage: You’re paying more than you receive in benefits or rewards
- Overspending temptation: Available credit encourages purchases you can’t afford to pay off monthly
- Duplicate benefits: Another card in your wallet offers the same perks without the fee
- Poor customer service: The issuer has repeatedly failed to resolve issues or support your needs
Credit Score Impact Explained
Understanding how closing a credit card affects your score helps you anticipate the consequences and plan accordingly. Two main factors come into play: credit history length and credit utilization.
Credit History Length
Your credit score benefits from older accounts. When you close a card, the account’s history stays on your report for approximately 10 years before falling off. During that time, it continues contributing to your average account age. After it disappears, your average age decreases if your remaining accounts are newer.
For instance, if you close a card you’ve had for 15 years, after 10 more years that 25-year-old tradeline would have boosted your profile significantly. Instead, it vanishes, and your credit age relies solely on your remaining accounts.
Credit Utilization Changes
Closing a card reduces your total available credit, which can increase your utilization ratio even if your spending stays the same. Maintaining utilization below 30% is widely recommended, with figures under 10% providing optimal results.
| Scenario | Total Limit | Balance | Utilization |
|---|---|---|---|
| Two cards open | $20,000 | $4,000 | 20% |
| One card closed | $10,000 | $4,000 | 40% |
| Optimal target | $20,000 | $2,000 | 10% |
This table illustrates how closing a card with a $10,000 limit doubles your utilization ratio, potentially lowering your credit score. Before closing any account, calculate your resulting utilization to understand the impact.
Alternatives to Closing
You don’t have to choose between paying an annual fee and closing the account. Several options exist that preserve your credit history while reducing costs or improving card fit.
Request a Product Switch
Many Canadian banks allow you to switch from one card to another within the same product family without closing your account or triggering a hard credit inquiry. This preserves your account age and credit limit while moving you to a card with lower fees or better-suited benefits.
For example, you could switch from a premium travel card with a $139 annual fee to a no-fee cash back card from the same issuer. Your account history continues uninterrupted, and your credit score remains protected. Contact your card issuer to explore available product change options.
Negotiate a Retention Offer
If your annual fee is about to post and you’re considering closing the account, call your card issuer first. Banks invest heavily in customer acquisition and often offer retention incentives to keep you from cancelling.
Retention offers can include statement credits ranging from $150 to $400, bonus points after meeting a spending threshold, or even partial fee waivers. The best time to ask is two to three weeks before your fee posts or within 30 days after it appears on your statement.
- Product switch: Move to a no-fee or lower-fee card within the same issuer’s portfolio
- Retention offer: Call the issuer and ask if retention incentives are available on your account
- Reduce the limit: Lower your credit limit if high available credit tempts overspending, without closing the account
- Keep it active: Set up a small recurring charge and autopay to prevent inactivity closure
Avoid Inactivity Closures
Card issuers may close accounts that remain inactive for extended periods. If you decide to keep a credit card but rarely use it, set up a small recurring paymentâsuch as a streaming subscriptionâand enable autopay to ensure the balance is paid in full each month.
Using your card at least once every three months is typically enough to keep it active. This minimal activity maintains your account in good standing and preserves your credit history and available credit. Compare your options with our credit card comparison tool to find cards that match your current spending patterns.
Steps Before You Decide
Before you keep or close a credit card, work through a structured evaluation to ensure you’re making the choice that best supports your financial health.
Calculate Your Utilization
Add up all your credit card limits and all your current balances. Divide total balances by total limits to find your utilization percentage. If closing a card would push you above 30%, consider keeping it open or paying down balances first.
Review Your Benefits Usage
List every perk your card offers: cash back, travel insurance, purchase protection, airport lounge access, concierge service. Next to each benefit, note how many times you used it in the past year. If usage is low and the fee is high, closing or switching may make sense.
Check Account Age
Look at your credit report or online banking to confirm how long you’ve held the card. If it’s your oldest account, weigh the credit score impact carefully before proceeding. If it’s newer and you have older cards, the impact will be smaller.
Once you’ve gathered this information, the decision becomes clearer. Keep the card if it supports your credit profile and offers value. Close it if costs exceed benefits and the credit impact is manageable. Consider alternatives like product switches or retention offers if you’re uncertain.
Bottom Line
Deciding whether to keep a credit card depends on your credit history, utilization, and the card’s value relative to its cost. Cards with no annual fee and high limits generally deserve to stay open, especially if they’re among your oldest accounts. Premium cards with high fees warrant careful analysis of benefits used versus fees paid.
Closing a card can raise your utilization ratio and shorten your credit history, potentially lowering your score. Before you close any account, explore product switches to no-fee cards or negotiate retention offers that reduce your costs without damaging your credit profile. If you do decide to close, ensure your remaining accounts keep your utilization below 30%.
Your credit score reflects your long-term financial behaviour. Making informed decisions about which cards to keep and which to close helps you maintain a strong profile while managing costs effectively. For more guidance on selecting the right cards, explore our best credit cards guide and subscribe to our newsletter for ongoing insights into Canadian credit products.
