Credit Tip of the Day – Don’t Close Old Credit Cards

A lot of us have an old credit card lying around in our wallets. Even though we do not use these cards anymore, we feel hesitant to close them. This might be attributed to the fear of damaging our credit score.

This fear is completely justified as our credit score is affected significantly when we close an old credit card. Therefore, it is advisable that we keep these old credits cards around so as to not harm your overall credit score.

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One may wonder how an old card that is not in use anymore could cause a severe decline in your credit score. This article aims to make this more clear, by sharing the exact impact that closing an old card can have on your credit score.

Credit Tip of the Day - Don't Close Old Credit Cards

What Happens When I Close an Old Credit Card?

Lowers the Length of Your Credit History

Your credit score partly depends on the duration of existing credit card. This duration is called your credit history.

Applicants who are applying for credit products for the first time have no credit history, which means they have no credit or a very low credit score.

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Closing an older card will shorten the length of your credit history, and it can reduce as much as 15% of your credit score.

Increases Your Credit Utilization

A credit utilization rate is defined as the amount of revolving debt that one might currently have in comparison to their total card limit. Therefore, it is recommended that one has a low credit utilization rate to have a better credit score.

When you decide to get rid of an old credit card, it reduces the amount of available credit you have. Consequently, this impacts the proportion of your credit card debt.

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Why Should You Keep Your Old Credit Card?

In case you are planning to apply for new credit soon, either in the form of a mortgage or a loan, it is advisable to keep your old credit cards to demonstrate a healthy credit score.

Browse through your credit report to identify some of your oldest credit cards to keep open to increase the length of your credit history. By doing so, you avoid decreasing your overall available credit.

Additionally, you can maintain the unused status of this card by ensuring that you do not use it to indulge in any big purchases. Doing so ensures that you continue to hold a low credit utilization rate and strengthens your credit score which means better prospects for approval of future loans or mortgages.

How Can You Close Your Card Successfully?

In case you feel that you have no alternatives other than closing your old credit card, then you can adopt the following methods to ensure that there are no drastic impacts on your credit score.

Pay the Balances On All Other Cards

A good way to avoid an increase in your credit utilization rate and a subsequent decrease of your credit score is to pay off the balances of all other cards.

Doing so will ensure that your credit utilization rate stands at zero, even after you close the credit card.

Get the Annual Fee Waived

Contact the customer service line of your card issuer and request for a waiver of the annual fee for your credit card.

In most cases, the bank either transfers your account to one with a minimum annual fee or waives the fee entirely. This means that you can keep the card open to avoid impacting the age of your card and your credit utilization rate.

Increase the Credit Limit of Other Cards

Credit Tip of the Day - Don't Close Old Credit Cards

Several experts state that closing a credit card would not impact the credit scores of individuals who have longer credit histories. For instance, if you have multiple cards with a long credit history, then closing one of them would not hurt your credit score as much.

So, you can simply increase the credit limit of your other cards by getting in touch with your bank before closing an older card.

The Bottom Line

Hold on to your old credit cards and keep them open to ensure a good credit score. This will aid you in all your financial decisions in the long run.