How will closing my oldest credit card affect my credit?

Imagine: your first credit card has been in your wallet for over ten years. You rarely, if ever, use it.

Maybe it’s a base map that doesn’t offer any rewards. Maybe he has an annual fee. Or maybe it’s a card that tempts you to overspend. You want to cancel it, but you are afraid that it will lead to a drop in your credit score.

This concern is not unfounded. Canceling an old card can certainly hurt your account.

Is it possible to close this card without hurting your credit, or does it make sense to close it even if you know your account might drop?

The answer to both questions is a resounding “maybe”. You may be able to limit the damage to your credit history by increasing the credit limits on your other cards or by asking your issuer to lower your card rating.

Intrigued? Let’s take a look at how closing a credit card can affect your credit and what options exist if you choose to keep that old piece of plastic.

How will closing a credit card affect your credit?

Jason Decker, Denver-based travel rewards consultant for Nomad Travel Hacker, has a simple piece of advice for consumers who want to close their old credit cards: don’t do it.

“You want to keep this oldest card open,” he says. “If you want to shut it down just because it doesn’t offer enough rewards, don’t do it.” To keep it active, use it from time to time and keep the balance redeemed.

This is because closing an old credit card can hurt your account in two ways:

1. Reducing the length of your credit history

The longer you use credit, the better for your credit score. Closing your oldest card will shorten your credit history, which is 15 percent of your credit score.

The damage from this, however, will not occur for a long time. This is because closed credit card accounts will remain on your credit report for up to 10 years from the date you were last active.

“Just because you closed your card doesn’t mean it won’t play a role in determining your credit score,” says Freddy Hyun, vice president of credit risk analysis at Freedom Financial Network in San Mateo, California. “The payments you made on these accounts don’t just disappear when you close them.”

By the time this account disappears from your credit report, chances are good that you will have enough new credit history to make up for this change.

2. Increasing the use of credit

If closing an old card – or any card – could cause more damage to your account, it’s an increase in credit utilization.

This is the amount you have borrowed compared to your credit limit and is the second most important factor in your credit score after making payments on time, accounting for 30 percent of your credit score.

You want this ratio to be as low as possible, and closing your oldest card will instantly reduce the amount of credit available to you.

Let’s say you have $5,000 in credit card debt and you have four credit cards with a total credit limit of $20,000. You are currently using 25 percent of the total available credit.

If you close your oldest card with a $3,000 credit limit and no balance, your total available credit drops to $17,000.

That $5,000 of credit card debt on your other cards now consumes 29 percent of your available credit. Your credit utilization rate has jumped even though you haven’t increased your credit card debt.

The lesson is clear: you should only close your credit card when absolutely necessary.

“Ask [your card issuer] if they have a no-annual fee version that you can upgrade to and still keep your line of credit open. If you can do that, it won’t hurt your credit score at all.”

When does it make sense to close the oldest credit card?

Hyun says there are certain factors that outweigh the potential impact on your credit history if you decide to cancel your credit card.

For example, if you don’t trust your shopping habits and are worried that having an extra credit card in your wallet will inspire you to overspend, it makes sense to close your account, even if it could cause your credit score to drop temporarily.

The hit to your credit score after closing your card will only be temporary if you have other active card accounts. However, for this to take place, you need to continue paying your bills on time and reduce your remaining credit card debt.

If you don’t have any other cards in your wallet, you may want to apply for a new card with a low fee before closing your old one, because not having any card or credit payment on your credit report could end up with no credit at all. stories.

But accumulating high-interest credit card debt? Hyun says it’s a much more costly financial hit.

“If you know that self-control is not your forte, closing the card might make sense,” Hein says. “If it keeps you from reckless spending, then closing this card is not a bad choice.”

Alternatives to closing the oldest credit card

If you’re not quite ready for the obligation of canceling a credit card, you have a few options.

If you have a card with a high annual fee, contact your issuer and ask to switch to a card with no annual fee. In order to keep you as a customer, your card provider may want to move your account to one that doesn’t charge an annual fee, or reduce or eliminate fees altogether.

“Whether it’s Chase, American Express, Discover, or anyone else, ask if they have a no-annual fee version that you can upgrade to and still keep your line of credit open,” says Decker. “If you can do that, it won’t hurt your credit score at all.”

Along the same lines, you can try asking for a lower interest rate. If you have good experience with the issuer when it comes to paying on time, your card issuer can work with you. There’s always a chance they won’t, but you won’t know until you ask.

If you’re still not interested in using this card after the annual fee is gone, that’s fine. Save it, hide it in your sock drawer (seriously), and use it from time to time so the issuer doesn’t cancel it. This way you won’t affect the age of your cards or your credit utilization rate.

It’s okay to let go of a temptation, especially if it makes you spend more than usual. But it’s important to note that issuers can recognize your credit card inactivity and reduce your credit limit or close your account entirely.

bottom line

Credit cards can add unnecessary stress to your life if you manage to open more lines of credit than you can afford. If you are considering closing an account, it is important to weigh the pros and cons. But remember that you have options.

For example, if your card is several years old and the annual fee is eating into your budget, ask your issuer to downgrade. Or perhaps you are tempted to overspend because your card offers great spinning rewards.

We get it, but you have to go ahead and put this in your sock drawer. However, take it out from time to time because you don’t want the issuer to cancel it due to inactivity.