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Two Reasons to Think Twice Before Canceling an Old Credit Card

 

Many of us have old, unused credit cards collecting dust in our wallets. And we’ve certainly been tempted to cancel them. After all, doesn’t it make sense to clean up your old credit and lighten your wallet at the same time? But don’t scurry off to call your credit card company just yet! Unless your old credit card charges an annual fee, closing it could actually have a detrimental impact to your credit score. Here’s why.

 

1) Canceling a card will increase your credit utilization.

 

One of the most important contributors to your credit score is your credit utilization, or the amount you owe across all your cards as a percentage of your total credit limit. If you cancel an old card, you will decrease your total credit limit. When your denominator decreases, your total utilization ratio spikes. And you thought you were done with algebra!

 

2) Canceling a card will shorten the length of your credit history.

 

When it comes to boosting your credit score, having a longer credit history is generally better. That’s because potential lenders have more insight into your borrowing habits. If you cancel one of your oldest credit cards, it can meaningfully bring down the average age of your credit.

 

The Bottom Line

The only reason I would advocate for canceling a card is if It charges you an annual fee and you don’t earn rewards to offset it. In any other case, there is no harm to keeping an old card on your books. In fact, it’s helpful to maintaining a favorable credit score.

 

Related Post: TWO REASONS TO THINK TWICE BEFORE CANCELING AN OLD CREDIT CARD

 

Erica Holland

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