Why You Should Never Close Your Oldest Credit Card

Why You Should Never Close Your Oldest Credit Card

When it comes to credit cards, there’s a lot of misinformation floating around. Many people believe that closing old credit cards is a good way to manage their finances, but this couldn't be further from the truth. In this post, we’ll dive into why you should always keep your oldest credit card open and debunk some common myths surrounding credit card management.

Myth: Closing Old Credit Cards Will Improve My Credit Score

Reality: It Can Hurt Your Credit Score

Many people think that closing old credit cards will help clean up their credit report and consequently improve their credit score. This is a misconception. Your credit score—especially your FICO score, which ranges from 300 to 850—takes into account various factors, including your credit utilization ratio and the average age of your credit accounts.

When you close an old credit card, you decrease your overall credit limit. For example, if your old credit card has a limit of $5,000 and you close it, your total available credit goes down. If you have a balance of $1,000 on another card with a $10,000 limit, your credit utilization ratio jumps from 10% to 12.5%. This increase can negatively impact your score.

Myth: It’s Better to Have Fewer Credit Cards

Reality: More Cards Can Improve Your Credit Mix

Some believe that having fewer credit cards makes you a more responsible borrower. However, credit scoring models like FICO actually reward a diverse mix of credit accounts, which can include credit cards, auto loans, and mortgages. By keeping your oldest credit card, you add to your credit history, which is beneficial for your score.

For instance, if you only have one credit card that you've had for a few years, your credit mix might look weak to lenders. Suppose you keep that card and add another one, like the Chase Freedom Flex. Now you have two different types of credit accounts, which can enhance your credit profile.

Myth: Closing a Card Will Stop Annual Fees

Reality: You Can Negotiate or Downgrade Instead

Many consumers fear annual fees and think that closing a card is the only way to avoid them. While it's true that some cards, like the American Express Platinum, charge hefty fees (upwards of $695), closing the card isn’t your only option. You can often negotiate with your card issuer to waive the fee or switch to a no-annual-fee version of the card.

For example, if you have an Amex Gold card but don’t want to pay the annual fee anymore, contact customer service. They might offer to downgrade you to a no-fee card while preserving your credit history.

Myth: I Won’t Use My Old Card, So I Should Close It

Reality: Inactivity Doesn’t Mean You Should Close It

Some people think that if they aren't using an old credit card, it’s best to close it. This is not true! Even if you don’t plan to use the card frequently, keeping it open helps maintain your credit history and boosts your credit score.

To keep an inactive card from being closed by the issuer due to inactivity, consider using it for small purchases, like a monthly subscription or a coffee run. Just make sure to pay off the balance in full each month to avoid interest charges.

Myth: Closing a Card Will Remove Negative Information

Reality: Negative Information Stays on Your Credit Report

Some believe that by closing a card with a negative history, they can erase that blemish from their credit report. Unfortunately, negative information can remain on your credit report for up to seven years, even if you close the account.

Instead of closing the card, focus on improving your overall credit profile. Pay down other debts, make timely payments, and keep your credit utilization low. Over time, the impact of that negative information will lessen as you build a positive credit history.

What Should You Do Instead?

Now that we've debunked these myths, let’s talk about some actionable steps you can take:

• Keep Your Oldest Card Open: Even if you’re not using it regularly, keeping your oldest credit card active is beneficial for your credit score.
• Use It Occasionally: Make small purchases on your old card to keep it active. Just remember to pay the full balance each month to avoid interest.
• Negotiate Fees: If your card has an annual fee, don’t hesitate to call customer service. You may be able to negotiate a waiver or downgrade to a no-fee card.
• Monitor Your Credit: Regularly check your credit report from all three major credit bureaus—Equifax, Experian, and TransUnion. You can get a free report once a year at AnnualCreditReport.com.
• Educate Yourself: Stay informed about credit management. Understanding how credit scores work will empower you to make better financial decisions.

In summary, keeping your oldest credit card open is one of the best moves you can make for your credit health. Don’t let myths guide your financial decisions; instead, arm yourself with knowledge and take control of your credit journey!