Below, CNBC Select spoke to Rod Griffin, senior director of consumer education and advocacy at Experian, to understand whether closing your oldest credit card, or any card at all, is a good idea. Closing a credit card may not have the severe negative effect you think it will.
The primary reason your score may decrease is through losing a credit limit and increasing your utilization rate. An increased utilization rate is a sign of risk to lenders since it represents you're using a large amount of your total available credit.
To calculate your utilization rate, divide your total balances by your total credit limits and multiply by Another reason experts recommend not closing your oldest credit card is because the average age of your accounts will decrease. However, Griffin says this is a common misconception — "Even after closing a credit card, information about how you managed that account will stay on your report for 10 years from the closed date.
And the average age of your accounts is significantly less important than your utilization rate. At the end of the day, you have to look at the long-term picture and ask yourself why you want to close the card. But if you have a high annual fee or credit card debt that's incurring steep interest charges, consider closing the card. While some card issuers allow you to close your account to new charges while you pay off a balance, we recommend you pay it off in full to avoid forgetting about debt and incurring fees.
If you want to gauge how closing a credit card may affect your credit score , consider online score simulators, such as CreditWise from Capital One. Some cards aren't meant to be kept forever. Secured cards , for example, are like credit-card training wheels. But if the issuer doesn't offer cards that are more desirable, canceling may be a smart option. Before closing your account, take these steps. If you are canceling because of fees, you could consider calling the issuer and asking if it has cards you would qualify for that are fee-free.
You might be able to switch to another card from the same issuer and keep your payment history. The same goes for cards that are no longer a good fit. Maybe you wanted an interest-free period when you opened a card, and now you would rather have a travel rewards card. If the issuer offers one you qualify for, you may be in luck. Keeping your card active and paid off every month will help raise your credit score and make you eligible for a new credit card offering that offers rewards and specific perks.
You can put a small, recurring charge on it on autopay. Email your questions to money wirecutter. Even if it has an annual fee? A lot of people seem to think they have to stay in a bad marriage with their credit card for the kids their credit score. FICO considers the age of your oldest account, the average age of your accounts, and the age of different types of accounts: installment loans like a student loan versus revolving credit like a credit card.
Even if you close your oldest account tomorrow, it will remain on your credit report for years to come.
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