Why You Should Never Close Your Oldest Credit Card

Why You Should Never Close Your Oldest Credit Card

If you're looking to improve your credit score or simplify your finances, you might think about closing old credit cards. But before you do, let's take a closer look at why keeping your oldest credit card open can actually benefit you in the long run. By the end of this guide, you’ll understand the implications of closing that card and have actionable steps to maintain your credit health.

Step 1: Understand the Impact on Your Credit History

Your credit history is one of the primary factors that credit scoring models, like the FICO score, use to determine your creditworthiness. The longer you’ve had a credit account, the more it contributes to a positive credit history. When you close your oldest credit card, you effectively shorten your credit history, which can negatively impact your credit score.

Why It Matters: A longer credit history can improve your FICO score, which typically ranges from 300 to 850. The average FICO score in the U.S. is around 714. By keeping your oldest card open, you’re more likely to maintain or even boost your score.

Common Pitfall: Many people think that closing an old card won’t have a significant impact. However, even a few points can make a difference in interest rates for loans or mortgages. Keep that card open!

Step 2: Keep Your Credit Utilization Ratio Low

Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. Ideally, you want to keep this ratio below 30% to maintain a healthy credit score. If you close your oldest credit card, you reduce your total available credit, which can increase your utilization ratio and potentially lower your score.

Why It Matters: For example, if you have a total credit limit of $10,000 and you're using $3,000, your utilization ratio is 30%. But if you close a card with a $2,000 limit, your new total credit limit drops to $8,000, raising your utilization to 37.5% if you still use the same $3,000. This could harm your credit score.

Common Pitfall: Many people don’t track their utilization ratios. Make it a habit to check your credit report regularly to ensure you’re maintaining a low ratio.

Step 3: Maintain a Diverse Credit Mix

Credit scoring models like a mix of different types of credit accounts, such as credit cards, installment loans (like car loans or mortgages), and retail accounts. Having a variety can positively influence your score. Your oldest credit card is likely one of your first credit accounts, contributing to this mix.

Why It Matters: If you close your oldest credit card, you might lose some of that diversity, which could affect your score. For instance, if your credit profile shows only newer accounts, lenders might view you as a higher risk.

Common Pitfall: Don’t focus solely on credit cards. Make sure you have a mix of credit types for a healthier credit profile.

Step 4: Take Advantage of Rewards and Benefits

Older credit cards often come with perks that newer cards may not offer. For example, your oldest card might have benefits like cash back, travel rewards, or no annual fee. By keeping it open, you can continue to enjoy these rewards.

Why It Matters: Let’s say your oldest card is a Chase Freedom Unlimited card. If you keep it open, you benefit from its 1.5% cash back on every purchase, which can amount to significant savings over time.

Common Pitfall: Don’t ignore the rewards. Make sure you’re using the card for purchases that maximize the benefits, such as groceries or gas, to earn more rewards.

Step 5: Monitor Your Credit Report Regularly

Keeping up with your credit report allows you to spot any issues, such as inaccuracies or identity theft. Closing a credit card can have immediate effects on your score, and it’s essential to track how these changes impact your financial health.

Why It Matters: You can request a free credit report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Regularly checking your report can help you stay informed and maintain a good credit score.

Common Pitfall: Many people wait too long to check their credit reports. Set a reminder to check your reports every few months to stay on top of your credit health.

What to Expect After Completing All Steps

After following these steps, you should feel confident about your decision to keep your oldest credit card open. You’ll better understand how it impacts your credit score, manage your credit utilization efficiently, maintain a diverse credit mix, enjoy rewards, and keep an eye on your credit report. By doing so, you’re likely to see improvements in your credit score over time, making it easier for you to secure loans, mortgages, and favorable interest rates.

In summary, keeping your oldest credit card open is a wise financial decision. It can help you maintain a robust credit score, enjoy rewards, and keep your financial profile healthy. So, think twice before you close that card — your future self will thank you!