Money

Here’s why you shouldn’t close out old credit cards, even if you don’t use them

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If you still have the very first credit card you opened in high school or college, don't close it. Even if it's fallen into disuse, it could still be helping your credit score.

When you close an account, you're shrinking your available credit, which can harm your credit utilization ratio. "Now all of the sudden, it looks like you're using more of the available credit that you have remaining," Greg McBride, chief financial analyst at Bankrate.com, tells CNBC Make It.

The more credit available to you, the lower your credit utilization ratio will be. This is helpful because it's ideal to use only 10 to 30 percent of your available credit at any given time.

"The 10 percent threshold is the point at which it's beneficial to your credit score," McBride says. "Between 10 and 30 percent it's neutral, and it's only when your balance is above 30 percent of your credit line that it actually works against your score."

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Additionally, part of your credit score is determined in part by longevity. While your payment history and amount owed make up the bulk of the score, about 15 percent of it is determined by the length of your credit history, taking into consideration the age of each account and how long it's been since you used each one.

"If your credit history is lengthy, lenders have more information to accurately assess creditworthiness," Credit Karma explains. "It's also frequently an indication that you have been able to successfully manage your credit."

But although the average length of credit history pertains to both open and closed accounts, there is no metric for average age of open accounts, McBride says. That means that closing an old account shouldn't make much of an impact in terms of the length of your credit history.

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Every person's history varies and will be affected differently. "If you are young and have a short credit history, closing the account could hurt your overall credit score more than if you were someone in their 50's who has a much longer credit history," Creditcards.com reports.

But "closing the account doesn't wipe that account history off your report, so if you open a new credit card with more attractive terms to replace the card you're canceling, your credit score [shouldn't] take a big hit."

If you're choosing to keep an underutilized account open, follow these steps:

  • First, ask yourself if the card is going to tempt you to run up your expenses. If it is, toss it. Boosting your score by a few points is never worth going into debt.
  • Next, make sure the card isn't charging you an annual fee. If it is, contact the issuer. "See if they can downgrade you to a no-annual-fee card in the portfolio, so it keeps the credit relationship open," McBride says. "You're maintaining the line of credit and maintaining the credit relationship."
  • Finally, use it. Even if you can't swipe it much or often, keep the card active. "If you have to make a token purchase every year or so just to keep that open, do that," McBride says.

This article has been revised and updated to reflect that closing an old account won't necessarily have a negative affect on the length of your credit history.

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