A lot of us have an old credit card lying around in our wallets. Even though we do not use these cards anymore, we are still skeptical about closing them. This might be attributed to the fear of damaging our credit score.
However, 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.
One may wonder how an old card that is not in use anymore could cause a severe decline in your credit score. In order to avoid this confusion, we have listed down the exact impacts of closing an old card on your credit score. Read on to learn more.
Lowers the Length of Your Credit History
Your credit score depends on the duration of the use of any credit card. For example, you might have seen that new applicants of credit cards require some time to build their credit scores.
However, you would not have to worry about earning a high credit score as one of your oldest cards would still be in use as per the records. Closing an older card will lower the length of your credit history, and it can reduce as much as 15% of your credit score.
Increases Your Credit Utilization
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 implies that the amount of available credit significantly reduces. Consequently, this impacts the proportion of your credit card debt.
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.
You can browse through your credit report to identify some of your oldest credit cards to increase the length of your credit history. By doing so, you would 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. This will help you to record a low credit utilization rate, and it ensures that you have better prospects for approval of your loan or mortgage.
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 Off Balances of All Other Cards
A good way to avoid an increase in your credit utilization rate and subsequently 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 one credit card.
Get the Annual Fee Waived Off
You can directly contact the concerned customer service executive of the bank and request for a waiver in the annual fee for your credit card.
In most cases, the bank either transfers your account to one with a minimum annual fee or completely waives off the fee. So, this will neither impact the age of your card nor will it hamper your credit utilization rate.
Increase the Credit Limit of Other 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
It is advisable to keep your old credit cards so as to ensure a good credit score. This will aid you in all your financial decisions in the long run.