How closing your oldest credit card affects your credit

Picture this: Your first credit card has sat in your wallet for more than a decade. 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 want 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 make 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 on your other cards or asking your issuer for a card downgrade.

Intrigued? Let’s see how closing a credit card can affect your credit and what options exist if you choose to hold on to that old piece of plastic.

How will closing a credit card affect your credit?

Jason Decker, travel rewards consultant who runs the site Travel Rewards Coach, has a simple piece of advice for consumers who want to close their oldest credit cards: Don’t.

“You want to keep that oldest card open,” he says. “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. Closing your oldest card will shorten the length of your 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 report for 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,” says Freddie Huynh, vice president of data optimization at 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 report, 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 is 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, and 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 close a credit card only if you absolutely must.

When does closing your oldest credit card make sense?

Huynh says there are certain factors that override the potential hit that your credit score can take if you do decide to cancel a credit card.

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.

The hit your credit score will undergo from closing a card will only be momentary if you have other active card accounts open. In order for this to be the case, though, you need to continue to pay your bills on time and cut down on any remaining credit card debt. Your newer, positive payment history will gradually build up your score and overtake any dips.

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 one, because not having any card or loan payment activity on your credit report can result in eventually having no credit score at all.

But running up loads of credit card debt at high interest rates? Huynh says 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 says. “If that keeps you from spending recklessly, then closing that card is not a bad choice.”

When does keeping your oldest credit card make sense?

If you’re considering closing your oldest account, without a concrete reason, consider the following. Perhaps when you think about it more, you may decide you should keep the card open.

• You won’t benefit much from canceling it. If the card doesn’t charge an annual fee and you don’t feel the need to use it and run high balances on it, you could just leave it open. Even if the card doesn’t earn any rewards, keeping your oldest card increases your average age of accounts and helps boost your credit score, as it factors into your profile’s length of credit history.
• Your credit score is right on the edge of the good credit range. If you’re on the cusp of ascending your credit into the next highest credit range, you should keep your credit card accounts as they are — avoid racking up any additional debt or reducing your available credit. Focus on making regular, full payments and your credit score could become a “good” one soon.
• You have many outstanding balances. If you’re running up high outstanding balances on your different credit card accounts, your credit may be closer to 100 percent utilized. This will drag down your score. Keeping your oldest credit card with a zero balance will give you more available credit, helping lower your credit utilization.
• Your credit score will undergo a hard inquiry soon. Cardholders who are applying for a loan or searching for a new apartment or looking for a new job should keep their old card, especially if its balances are low or zero. You’ll want your score to be as high as possible for when lenders perform hard inquiries on your credit report so that you appear as low-risk a consumer as possible.

Alternatives to closing your oldest credit card

If you aren’t quite ready for the commitment that comes with canceling a credit card, you do have a few options.

If you have a card with a high annual fee, contact your issuer and ask to be downgraded to a card with no 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.

“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 says. “If you can do that, it won’t hurt your credit score at all.”

Along those same lines, you could try asking for a lower interest rate. If you have a strong history with the issuer when it comes to paying on time, your card issuer may be able to work with you. There’s always a chance they will say no, but you won’t know until you ask.

If you’re still not interested in using that card after the annual fee disappears, that’s fine. Keep it, hide it in your sock drawer (seriously) and use it occasionally to prevent the issuer from canceling it due to inactivity. This way, you won’t impact either the age of your cards or your credit utilization ratio.

It’s OK to take the temptation away, especially if it is causing you to spend more than you normally would. But it’s important to note that issuers may recognize the inactivity on your credit card and decrease your credit limit or close the account altogether.

Bottom line

Credit cards can add unnecessary stress to your life if you manage to open up more lines of credit than you can handle. If you’re contemplating closing an account, it’s important to weigh the pros and cons. But remember that you have options.

For example, if your card is a few years old and the annual fee is eating into your budget, ask your issuer to downgrade, also known as a product change. Or, perhaps you’re tempted to overspend because your card offers great rotating rewards. We get it, but you should hide that one in your sock drawer instead, where it can still keep your credit utilization low without enticing you to run up high balances.