Why You Should Never Close Your Oldest Credit Card

Introduction

When it comes to credit cards, there's a lot of misinformation floating around. Many people believe certain myths that can damage their credit scores or lead to poor financial decisions. One common myth is that you should close your oldest credit card to simplify your finances. However, doing so could be a costly mistake. In this post, we’ll bust this myth and explain why keeping your oldest credit card open is essential for your credit health.

Myth: Closing Your Oldest Credit Card Improves Your Credit Score

Reality: It Can Actually Lower Your Score

Many people think that closing an old credit card will improve their credit score by removing what they perceive as unnecessary debt. However, one of the key factors that determine your FICO score is your credit history length. The longer your credit history, the better it is for your score.

When you close your oldest credit card, you reduce the average age of your accounts, which can lower your score. For example, if your oldest card is 10 years old and you close it, your average account age drops significantly, which could hurt your score. Remember, your FICO score ranges from 300 to 850, and a score of 714 is already considered good. A slight dip could push you into a lower tier, affecting your ability to get favorable loan terms in the future.

Myth: You Should Close Cards You Don’t Use

Reality: Inactivity Doesn’t Mean You Should Close Them

It’s common to think that if you’re not using a credit card, it’s better to close it. However, even an unused card can benefit your credit score. Credit utilization, which is the amount of credit you are currently using compared to your total credit limit, is another significant factor in determining your FICO score. When you close a card, you reduce your total available credit limit, which can increase your utilization ratio and negatively impact your score.

For example, if you have a total credit limit of $20,000 across five cards and you close one with a $5,000 limit, your utilization jumps from 25% to 31.25% if you carry any balances. Keeping that card open—even if you don’t use it—helps maintain a lower utilization ratio, which is beneficial for your credit health.

Myth: Closing Old Cards Helps You Avoid Fees

Reality: Many Cards Have No Annual Fees

Some people fear being charged an annual fee for a credit card they rarely use and decide to close it. While some premium cards, like the Amex Platinum, do have hefty annual fees, many credit cards—especially those from major issuers like Chase and Discover—offer no annual fee options. If you’re worried about fees, consider switching to a no-annual-fee card instead of closing your oldest card.

Additionally, you can often negotiate fees with your credit card issuer, especially if you’ve been a long-time customer. A quick phone call might result in a waived fee or even a different card with better rewards that suits your spending habits.

Myth: Closing Your Oldest Card is a Quick Fix for Bad Spending Habits

Reality: It’s Better to Focus on Smart Spending

Some people think that closing an old card will help them avoid the temptation of overspending. However, this is a short-term solution to a long-term problem. Instead of closing your card, consider adopting better spending habits. Use the card responsibly, set a budget, and pay off your balance in full each month to avoid interest charges.

For those struggling with credit card debt, the average credit card debt in the US is around $6,580. If you have multiple cards with balances, instead of closing accounts, focus on paying off the highest interest card first. The average APR on credit cards is about 20.5%, so managing your balances wisely can save you significant money in interest payments.

Myth: Your Credit Score Doesn’t Matter That Much

Reality: Your Credit Score Affects Many Financial Aspects

Some people overlook the importance of their credit score, thinking it doesn’t significantly impact their lives. However, a good credit score is essential for obtaining favorable interest rates on loans, getting approved for rental applications, and even landing certain jobs. Your credit score might not seem directly related to your daily life, but it affects your financial opportunities in a big way.

For example, if you want to buy a home, a higher credit score could save you thousands over the life of a mortgage. A difference of just 50 points on your FICO score can lead to drastically different interest rates on a mortgage, which can add up to tens of thousands of dollars over time. Keeping your oldest credit card open can help maintain that score.

Conclusion: What You Should Actually Do

Now that we’ve debunked these common myths, here’s what you should do:

• Keep your oldest credit card open to maintain your credit history length.
• Don’t close unused cards; they can help keep your credit utilization low.
• If you’re worried about fees, look for no-annual-fee options or negotiate with your issuer.
• Focus on responsible spending and paying off your balances in full.
• Monitor your credit score regularly and take steps to improve it if necessary.

Remember, credit cards can be a valuable tool for building your financial future. By understanding the truth behind these myths and making informed decisions, you can improve your credit score and overall financial health.