Closing Your Oldest Credit Card Can Reduce The Length Of Your Credit History
The length of your credit history accounts for 15 percent of your FICO credit score. Its worth noting that you probably wont see the effect on your credit score right away, since closed credit accounts still contribute to your FICO credit score until they fall off your credit reportwhich could be as long as 10 years from now.
How much does closing a credit card hurt your credit? Its hard to say for sure. If you continue to use your other credit accounts responsibly by making on-time payments every month, maintaining a low credit utilization ratio and paying off your balances regularly, your credit score probably wont take much of a hit. A person with a positive credit history is likely still going to have a positive credit history even if they close one of their older credit cards.
Should You Cancel Your Credit Card Probably Not
The first question to ask yourself before canceling a card is: Do you really need to cancel it? Or would it be better to just put it away and not use it? Having an available line of credit on a card with no balance always helps your credit score, and it could come in handy in an emergency or if its terms improve in the future.
There are two situations, however, when closing a credit card is called for:
In those cases, it makes sense to cancel cards, since they are unnecessarily costing you money.
Asking For Retention Offers
If a credit card issuer is giving you a welcome bonus of 50,000+ points to open a new card, theyll want to keep your business, especially if you continue to spend regularly on your card after that three-month introductory period is over. Even if youre 99% sure you want to cancel a credit card, it cant hurt to ask about the possibility of an annual-fee waiver or a retention offer.
It seems crazy to think that a giant corporation is going to waive your fees simply because you ask, but its entirely possible. Its like renegotiating your cable bill. All you have to do is threaten to walk away and suddenly a new limited-time offer is likely to appear on your account. Many TPGers have used this strategy successfully a number of times, although it doesnt always work and you certainly arent entitled to anything.
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Plan Your Exit Strategy
If youve gone through the list above and you still want to cancel your credit card, its time to plan your exit strategy. There are two primary goals you should keep in mind during this process protect your credit scores and protect your rewards. You dont want to see your credit score spike by just canceling cards and you dont want to lose any points or miles you may have accumulated.
Improves The Average Age Of Your Credit:
Keeping your zero balance credit card open could increase the average age of your credit card accounts, which is influential when calculating your VantageScore credit score.
Let’s say that zero balance account was opened in 2015, and the other one with the $300 balance and $1,000 credit limit was opened in 2019. If you close your 2015 account, then you’re going to look like you’ve only just started to get access to credit. Keeping an older credit card would show lenders that you are capable of managing credit over a number of years.
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Cancelling Unused Credit Cards
While we admire your instinct to do away with accounts you are not using, by now you have figured out that much in the world of consumer finance seems convoluted. Simply put, the Big Three credit bureaus like it when they see more and older accounts and more available credit.
If you have other credit cards with high balances, notes Anchorage, Alaska-based financial planner Chad Rixse, closing unused cards increases your utilization rate, which can also reduce your score.
However, if you keep accounts open, even with no balance, they stay on your credit report, increase your total amount of credit available, decrease your utilization rate, and remain as a positive mark on your report.
Moreover, if the unused card you intend to close is fairly new, has a low credit limit, or you dont have much debt, theres likely to be a minimal impact on your credit score.
Will My Credit Score Be Damaged If I Close Several Credit Card Accounts At Once
For a variety of personal reasons closing credit card accounts might seem like a good idea.
Do these reasons to do so sound familiar?
- You want to avoid the temptation.
- Youre tired of pesky annual fees.
- The rewards arent as useful as advertised.
- Keeping up with a bunch of closing dates is a pain, and the penalties if youre late even just one single, puny time can be punishing.
- You have some accounts you havent used in years and you have enough worries about crafty data thieves cracking the accounts you do use.
Every one of those constitutes a perfectly rational reason for shutting down one or two or even several credit cards. And if your call to action is a landslide of celebration-inspired bills Christmas, Easter, birthdays, weddings, etc. Riley Adams gets it.
An unintended binge-spend during the holidays can often elicit some consequences on your financial bottom line, says CPA Riley Adams, a Google Senior Financial Analyst. For those shocked enough, they decide to cancel one or several credit cards. They reason: I cant spend on credit cards I dont have.
While, on the face, that makes sound financial sense, it often manifests in negative consequences in unexpected ways.
Understand, too, that if your mind is made up, there are ways to soften the blow that, in fact, done strategically, you can close credit cards and actually improve your FICO score.
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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: Dont.
You want to keep that oldest card open, he said. If you want to close it just because it doesnt offer enough rewards, dont. To keep it active, use it occasionally and keep the balance paid off.
Thats because closing an old credit card can hurt your score in two ways:
How To Close Credit Cards Safely
There are some legitimate reasons to close a credit card account. For example, you might want to cancel your credit card if you dont trust yourself to use your credit card responsibly.Another reason you might want to close a card is if the annual fee on your credit card is high, and its benefits dont offset the cost. You typically need to close joint accounts during a divorce or separation as well.
On the other hand, closing a credit card wont remove it from your credit report. So, if youre hoping to erase negative activity with an account closure, this strategy wont be effective.
If youve done your research and believe that canceling your credit card is in your best interest, there are steps you can take to protect yourself. The steps below detail the safest way to close a credit card from a credit scoring perspective.
- Step One: Pay off your full credit card balance and confirm that the balance is $0 with the issuer.
- Step Two: Cancel any recurring payments you have set up on the card.
- Step Three: Pay off all of your other credit cards before the statement closing date on those accounts.
- Step Four: Call the card issuer to close your account. Ask for written confirmation that your account balance is $0.
- Step Five:Monitor your three credit reports to make sure the card issuer updates the account to show it is closed with no outstanding balance.
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Unused Credit Cards And Your Credit Score
There are a lot of factors used to determine your credit score the two biggest being payment history and your credit utilization. Depending on how many credit cards you have, this will change your credit limit and your overall credit utilization which should typically be around or below 30%.
If you only have one credit card that you use every once in a while and you pay it off in full, on time, every time, you will slowly build a strong credit history. By only using a small amount of your credit limit, you are lowering your overall credit utilization. But, if you carry a credit card debt balance from month to left, make sure to check out your
If you have many credit cards, using them all actually becomes less important. A larger credit limit allows you to lower your credit utilization. In addition, for people with a lot of credit cards in their personal finance portfolio, it is normal to have a few cards out of use. If your unused cards have an annual fee, it may save you some money if you cancel it.
In addition, if cards are left dormant for a certain period of time, your credit card issuer or credit card company may close your account. Remember, if you have an inactive card, checking up on the inactive card can ensure that there are no fraudulent charges affecting your credit report and bank account. And, make sure inactive cards are paid off in full, or else you may rack up high amounts of interest depending on the interest rate on the card.
Re: Closing Multiple Credit Cards
To answer your general question no it should not spook the other banks you currently have credit relationships with. The only real way I can see them being concerned if your utilization is high enough for them to be worried that the closures were not customer-initiated but were the banks trying to cut their losses. Then they might follow suit as a result. An example would be something like balance chasing. Since you’re just trying to cut the fat as it were from your credit card portfolio as long as your utilization is in check it should be fine there
With regards to AAoA closed credit cards will still report 7-10 years on your credit profile, in some cases even beyond that though you won’t know when they’ll close til it just happens randomly one day. By then assuming you haven’t gotten app happy the cards you plan to hold on to will be sufficently old enough to take any aging hits from removed closed accounts
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Lower Total Credit Available
For starters, your credit score is based on how much of your available credit you’re actually using. This is called your . For a given level of spending, lowering your total credit available gives you a higher utilization ratio.
For example, if the available credit for all your cards combined is $10,000 and you have a total of $2,000 in charges, your utilization ratio is 20 percent . If the card you cancel has a credit limit of $3,000, your total credit available goes down to $7,000. With the same $2,000 in spending, your utilization ratio is now 29 percent. A higher ratio may hurt your credit score. The best scores usually have a ratio between .01-.10, meaning you’re using 10 percent or less of your available credit. Good scores usually fall at or below 30 percent. Anything above this might damage your score.
Closed At The Consumers Request
You should also be sure to close all credit accounts on your own terms. That means dont wait for your bank to close an account because of payment issues. That will hurt your credit score even more.
Also, be aware that any customer service representative you speak to will likely try to convince you that another credit product would work better for you. Dont give them personal details about your reasons for closing the account. Simply be firm about your intentions. Let them know you want your credit report to reflect that you requested the account to be closed.
You dont need a to understand how opening and closing a credit card affect your credit. Youre now armed with the knowledge you need to strategically manage your credit card accounts to get the best possible scoring in the relevant categories.
With a full 35% of your credit score affected by how you use your credit card accounts, there is certainly room for improvement no matter where your number is currently. Before you make any move regarding your credit cards, remember both the long-term and short-term effects those decisions could have on your credit.
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Your Card Has A High Interest Rate
If your card has a high interest rate, it makes sense to avoid carrying a balance on the card. You don’t need to close the card to avoid interest if you make sure to pay off the balance every month or simply don’t use the card.
Make sure you only charge items you can pay off in full to avoid interest and keep the account open. You’ll need to use the card occasionally to avoid having it closed by the card issuer, but it only takes a small charge every once in a while to avoid closure.
Lowering Your Length Of Credit History
The longer youve been using credit, the better it is for your credit score. Thats 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, wont happen for a long time. Thats 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 doesnt mean it wont 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 dont just disappear when you close them.
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Why Canceling A Credit Card Could Hurt Your Credit Score Temporarily:
One way canceling a credit card account could hurt your credit score is if it reduces the amount of credit that you have available and thus increases your overall . Keeping utilization low is key for a good credit score. So closing a high-limit credit card account will hurt your score more than closing a low-limit account, all else being equal.
Another way canceling a credit card account could hurt your credit score is if it brings down the average age of your accounts. That can make it seem like your credit history is shorter than it really is. Closing one of your oldest accounts will lead to more credit score damage than closing a newer one.
Plus, youll have one fewer account reporting positive information to the credit bureaus each month, assuming the credit card you cancel was in good standing.
When It Makes Sense To Cancel A Credit Card
While canceling your credit card may impact your credit score, there are some reasons to move forward with this decision. Here are a few examples:
- You have a high interest rate.
- You find it challenging to resist the temptation of using this card.
- You want to trade a secure card for a credit card with better benefits and rewards
- Your credit card benefits arent worth the high annual fee.
If any of these reasons apply to you, it may be worth it to cancel your card. Additionally, if you find the long-term benefits outweigh the short-term impact, its wise to move forward with canceling the card.
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It Changes The Length Of Your Credit History
Your length of credit history makes up 15% of your credit score, and it includes the age of your oldest card, your newest card and the average age of all your cards. A longer credit history can boost your score.
Closing your oldest card could shorten your average and bump down your score. But the impact won’t happen right away. Typically, a closed credit card in good standing will stay on your credit file for 10 years, so it could be a while until closing an older card account dings your score.
What Should I Do If I Have An Unused Credit Card
Should you cancel unused credit cards or keep them? Thereâs no one right answer, and several factors to consider. For example, cancelling a card may:
- Reduce the risk of fraud â an open account you hardly ever check up on may be more vulnerable to fraudsters, who may pretend to be you in order to spend money in your name.
- It can be good to show lenders that you can successfully manage multiple credit accounts, as they may see this as evidence that youâre a reliable borrower. So, cancelling a long-held card could put you at a disadvantage, depending on what the lender is looking for. Whatâs more, cancelling a card may increase your credit utilisation â the proportion you use of your available credit â which can also lower your score. For example, if you have an overall limit of Â£1,000 and you use Â£250 of it, your credit utilisation is 25%. But say you cancel a card and your overall credit limit shrinks to Â£500 â if youâre still using Â£250 in credit, your credit utilisation will now be 50%.
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