If you opened your first credit card during college to get a free t-shirt or went to the same bank as your parents, you may not find much value in that card anymore. There's a chance you may even consider closing your credit card — but should you?
Experts often warn against closing a credit card, especially your oldest one, since it can have a negative impact on your credit score. Before you close your credit card, consider the potential effect.
Below, CNBC Select spoke to Rod Griffin, senior director of consumer education and advocacy at Experian, to understand whether closing your oldest credit card, or any card at all, is a good idea.
How closing a credit card affects your credit score
Closing a credit card may not have the severe negative effect you think it will. "While your scores may decrease initially after closing a credit card, they typically rebound in a few months if you continue to make your payments on time," Griffin says.
The primary reason your score may decrease is through losing a credit limit and increasing your utilization rate. "When you close a credit card account, you lose the available credit limit on that account...this makes your overall credit utilization rate, or the percentage of your available credit you're using, increase," Griffin says.
An increased utilization rate is a sign of risk to lenders since it represents you're using a large amount of your total available credit.
For example, let's say you have two cards:
- Card A: $6,000 credit limit, $1,500 balance
- Card B: $4,000 credit limit, $1,500 balance
To calculate your utilization rate, divide your total balances by your total credit limits and multiply by 100.
Here's the math: ($1,500 + $1,500) / ($6,000 + $4,000) x 100= 30%
Now, if you decide to close Card A and continue to spend a total of $3,000, your utilization rate would drastically spike. A $3,000 balance on Card B with a $4,000 credit limit would equal a whopping 75% utilization rate.
Here's the math: $3,000 / $4,000 x 100 = 75%
Experts typically recommend maintaining a 30% utilization rate, but "in general, the lower the rate, the better," Griffin says. "The overall increase in your utilization rate is the most important thing to consider when you're trying to decide whether you should close an account."
Another reason experts recommend not closing your oldest credit card is because the average age of your accounts will decrease. However, Griffin says this is a common misconception — "Even after closing a credit card, information about how you managed that account will stay on your report for 10 years from the closed date."
And the average age of your accounts is significantly less important than your utilization rate. "If you have an established credit history, closing an account with an older history will generally be offset by your remaining accounts in a relatively short time," Griffin explains.
When you should close a credit card
"A temporary decrease in scores shouldn't keep you from closing a credit account because there are times that it makes sense to do so," Griffin says.
Here are two times it may make sense to close a credit card, according to Griffin:
- You're paying an annual fee that's no longer worthwhile.
- Your card has a high interest rate.
"Closing the card may be a good move to protect your financial health in the long run, even if it is your oldest card," Griffin explains.
At the end of the day, you have to look at the long-term picture and ask yourself why you want to close the card. If it's a no annual fee card, such as the Citi Double Cash® Card, and you pay the balance in full every month, then there's really no harm in keeping it open. But if you have a high annual fee or credit card debt that's incurring steep interest charges, consider closing the card. (see rates and fees.)
Before you close a credit card, make sure you pay off any balances or transfer debt to a balance transfer card, such as the Discover it® Balance Transfer, to benefit from anintroductory interest-free period. While some card issuers allow you to close your account to new charges while you pay off a balance, we recommend you pay it off in full to avoid forgetting about debt and incurring fees.
Check how your credit score may be affected
If you want to gauge how closing a credit card may affect your credit score, consider online score simulators, such as CreditWise from Capital One. For instance, CreditWise's simulator allows you to see how taking certain actions, such as closing a credit card or paying off a balance, might impact your credit score.
When I simulated how closing my oldest credit card would affect my credit score, it only showed a one point decrease from 808 to 807. Keep in mind, the exact effect on your credit score can vary.
Alternatives to closing your oldest credit card
If you're considering closing any credit card account, Griffin recommends you first ask yourself, "Why do I want to close it?" That may be due to an annual fee or high interest rates, like we mentioned above.
If you're looking to get rid of an annual fee card, consider asking your card issuer for a retention offer, like I did last year with my American Express® Gold Card. This may include them waiving or lowering your annual fee, or offering cash back, pointsormiles to help offset it. Terms Apply.
And if you have a card with a high interest rate and debt, try calling to ask for a lower interest rate. If you have a relatively good history and always make your minimum payment on time, your card issuer may be willing to work with you. After all, it never hurts to ask.
For rates and fees of the Discover it® Balance Transfer, click here.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
“While your scores may decrease initially after closing a credit card, they typically rebound in a few months if you continue to make your payments on time,” Griffin says. The primary reason your score may decrease is through losing a credit limit and increasing your utilization rate.
Will closing old credit card accounts definitely decrease your cibil score answer? ›
Yes. Closing a credit card will negatively impact your credit score. You will see a decrease in your score as bureaus don't have access to your credit information or behavior anymore. Closing a credit card will remove the associated credit history and lowers the average length of your credit history.
Does closing a credit card affect the average age of accounts? ›
Closing a credit card can decrease the average age of your accounts, particularly if it's a card that you've had for much longer than others. Closing your newest account, however, generally will have minimal to no impact on credit history.
Does closing a credit card with a balance hurt your credit? ›
You should also know that closing a credit card with a balance can hurt your credit score — even though you're not adding more debt. Read on to learn everything that can happen when you close a credit card while still owing money, plus some pros and cons that come with making this move.
Can credit cards hurt your credit score explain? ›
Credit cards can help or hurt your credit score depending on how you use them. Paying your credit card bills on time each month is the best way to build a strong credit score. Paying late or missing a payment can lower your score. It's also important not to owe too much on your cards at any given time.
Will my credit score go down if I close my oldest credit card? ›
Closing a credit card may not have the severe negative effect you think it will. “While your scores may decrease initially after closing a credit card, they typically rebound in a few months if you continue to make your payments on time,” Griffin says.
Why did my credit score go down after closing an account? ›
This is because your total available credit is lowered when you close a line of credit, which could result in a higher credit utilization ratio. Additionally, if the account you closed was your oldest line of credit, it could negatively impact the length of your credit history and cause a drop in your scores.
Will closing my newest credit card increase my credit age? ›
The average age of your accounts will decrease
The longer you've had credit, the better it is for your credit score. Your score is based on the average age of all your accounts, so closing the one that's been open the longest could lower your score the most. Closing a new account will have less of an impact.
Is closing an unused credit card bad? ›
Credit experts advise against closing credit cards, even when you're not using them, for good reason. “Canceling a credit card has the potential to reduce your score, not increase it,” says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report.
Why should you keep your oldest credit card accounts active? ›
Closing an account you've had for years will have a bigger impact on your score than closing an account you've only had for a short time. Closing any account will also impact your credit utilization ratio. Any balances you have on other cards will then take up a larger portion of your available credit.
Consider downgrading the card to a no-annual-fee version if possible. Pay off any remaining balance before closing the card. If you can't do this, consider transferring the balance to a low interest rate credit card, or talking with your card issuer about a payment plan. Redeem your rewards.
How many points will my credit score drop if I close a credit card? ›
While there's truth to the idea that closing a credit account can lower your score, the magnitude of the effect depends on various factors, such as how many other credit accounts you have and how old those accounts are. Sometimes the impact is minimal and your score drops just a few points.
Is it better to close credit cards with zero balance? ›
In general, it's better to leave your credit cards open with a zero balance instead of canceling them. This is true even if they aren't being used as open credit cards allow you to maintain a lower overall credit utilization ratio and will allow your credit history to stay on your report for longer.
Should I pay off my credit card in full or leave a small balance? ›
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
What happens if I use 90% of my credit card? ›
Helps keep Credit UtiliSation Ratio Low: If you have one single card and use 90% of the credit limit, it will naturally bring down the credit utilization score. However, if you have more than one card and use just 50% of the credit limit, it will help maintain a good utilization ratio that is ideal.
Is 5 credit cards too many? ›
There is no right number of credit cards to own, and owning multiple cards gives you access to different rewards programs that various cards offer. Owning five cards, for example, would give you a bigger total line of credit and lower your credit utilization ratio.
How to close credit card without hurting CIBIL score? ›
CLEAR ALL DUES: An issuer will close the card only if free of all dues. Clear them before the next cycle. 4. REDEEM BENEFITS: Check your reward points balance and redeem them before you apply for closure of the card.
Does removing old accounts affect credit score? ›
"Removing a closed account could cause a score increase, decrease or have no impact," he says. If you paid as agreed, McClary says, "It doesn't make much sense to request removal of an account." Removing an account in good standing from your credit report can backfire in other ways, Quinn adds.
Can you improve your credit score by closing accounts that are overdue? ›
While closing an account may seem like a good idea, it could negatively affect your credit score. You can limit the damage of a closed account by paying off the balance. This can help even if you have to do so over time.
