Closing your oldest card: When it makes sense, how to protect your score
Here's how to deal with that old plastic when it's become a drag
Specializes in mortgages, credit and credit scores
Your first credit card has sat in your wallet for more than a decade now. You rarely, if ever, use it.
Maybe it’s a basic card that doesn’t offer any rewards. Maybe it has an annual fee. Or maybe it’s a card that’s tempting you to overspend.
You’d like to cancel it, but you’re worried that doing so will cause your credit score to drop.
That worry isn’t unfounded. Canceling an old card could certainly hurt your score.
Is it possible to close that card without hurting your credit, or does it makes sense to close it even if you know your score might take a dip?
The answer to both questions is a solid “maybe.” You might be able to limit the damage to your credit score by:
- Boosting the credit limits of your other cards.
- Asking your issuer for a card downgrade.
Intrigued? Let’s see why closing a card can hurt your score and how you can take care of that old clunky plastic successfully.
See related: When is a credit card annual fee worth it?
Closing your oldest credit card: A quick guide
Why closing your oldest card may hurt your score
Jason Decker, a Denver-based travel rewards consultant with the site Nomad Travel Hacker, has a simple piece of advice for consumers who want to close their oldest credit card: Don't.
“You want to keep that oldest card open,” he said. “If you want to close it just because it doesn’t offer enough rewards, don’t." To keep it active, use it occasionally and keep the balance paid off.
That’s because closing an old credit card can hurt your score in two ways:
1. Lowering your length of credit history
The longer you've been using credit, the better it is for your credit score. That’s why, as myFICO.com says, newer credit users will have a more difficult time earning a high credit score than will those with a longer credit history.
Closing your oldest card will shorten your length of credit history – which accounts for 15 percent of your credit score.
The damage from this, though, won't happen for a long time. That's because closed credit card accounts will stay on your credit reportfor up to 10 years from the date of your last activity.
“Just the fact that you closed your card doesn’t mean it won’t play a role in determining your credit score,” said Freddie Huynh, vice president of credit risk analytics at San Mateo, California-based Freedom Financial Network. “The payments you made on those accounts don’t just disappear when you close them.”
By the time this account does fall off your credit reports, the odds are good that you'll have built up enough of a new credit history to compensate for the change.
2. Increasing your credit utilization
Where closing an older card – or any card, really – can cause more damage to your score is when it increases your credit utilization ratio.
This is the amount you have borrowed compared to your credit limits and the second most important credit-scoring factor after making on-time payments, accounting for 30 percent of your credit score.
You want this ratio to be as low as possible. Closing your oldest card will instantly lower the amount of credit available to you.
Say you have $5,000 of credit card debt and you have four credit cards with a combined credit limit of $20,000. You are now using 25 percent of your total available credit.
If you close your oldest card that has a credit limit of $3,000 and no balance, this will lower your total available credit 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 ratio has jumped, even though you haven't increased your credit card debt.
The lesson is clear: You should only close a credit card if you absolutely must.
3 tips for closing a card successfully
How can you avoid the pain that closing that old credit card could cause your credit score?
1. Pay off the balances on your remaining cards
This is something you should be doing anyway. If you pay off what you owe, closing an unused account won’t hurt your credit utilization ratio.
That’s because paying off all your credit card debt will leave your ratio at 0 percent, even if you close a line of credit.
But what if you can’t pay off all your debt and you’re stuck with a card with an annual fee you don’t use?
2. Ask your card provider to get the annual fee waived
Maybe you have a card that charges a $95 annual fee. Call your bank and explain that you no longer want to pay the annual fee. To keep you as a customer, your card provider might be willing to transfer your account to one that doesn’t charge an annual fee – or lower the fee or waive it altogether.
A CreditCards.com survey found that 70 percent of those who asked had an annual fee waived or lowered.
“Whether it be Chase, American Express, Discover or anyone else, ask if they have a no-annual-fee version you can downgrade to and still keep your line of credit open,” Decker said. “If you can do that, it won't hurt your credit score at all.”
If you’re still not interested in using that card after the annual fee disappears, that’s fine. Keep it and use it occasionally to prevent the issuer from canceling it for inactivity. This way, you won’t impact either the age of your cards or your credit utilization ratio.
3. Increase your remaining cards' credit limits
Milad Hassibi, director of content for San Diego-based CrediReady, said that closing a credit card won't have as much of an effect for people who have longer credit histories.
If you have multiple credit cards that are 7 years old, for instance, closing one won't have as much of an impact on the age of your credit history.
If your card provider won’t downgrade you to a new card without an annual fee, you might still be able to cancel that card without hurting your credit utilization if you happen to be carrying balances on other cards.
For example, Hassibi said that you can call your other credit card providers and ask them to boost your credit limits. This will give you more available credit, and might offset the impact of closing your oldest card.
The CreditCards.com survey mentioned earlier also found that 85 percent who asked received a higher credit limit.
Huynh said that there are certain factors that override the potential hit that your credit score can take.
For instance, if you don't trust your spending habits and you worry that having an extra credit card in your wallet will inspire you to overspend, it makes sense to close the account, even if it might give your credit score a temporary dip.
That's because the credit score impact of closing a card will only be temporary if you have other active card accounts open and keep paying those bills on time and cut down on any remaining credit card debt. If you don't have any other cards in your wallet, you may want to apply for a new, low-fee one before you close the old card as not having any card or loan payment activity on your credit reports can result in eventually having no credit score at all!
But running up loads of credit card debt at high interest rates? Huynh said that's a far costlier financial hit.
“If you know self-control isn't your strong suit, closing a card can make perfect sense,” Huynh said. “If that keeps you from spending recklessly, then closing that card is not a bad choice.”
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