If you’ve recently thought to yourself, “Should I close this old credit card?”, picture this:
You slide your hand into your mailbox. It’s cold to the touch, but it’s not the aluminum mail container that’s sending a chill down your spine, it’s your credit card statement.
It’s the one you’ve been paying off since before you can remember. Your earliest memory is adopting your dog Scruffy from the pound when you were four years old, and then all of a sudden you were buried in credit card debt like all of Scruffy’s toys in the back yard.
So once you finally have the means to pay it off, nothing seems more enticing than cutting off all ties to that company that’s had its hand in your pocket all these years and closing the card.
But despite your ill will, it’s not the best option.
Keeping an old credit card around, even if you don’t use it, can help your credit score.
The first thing old credit cards do is lengthen the age of your credit history. To put it simply, the longer the better, and if your average credit line is six years and you cancel a card you’ve had for five, this can have a negative effect on your credit score.
FICO (Fair Isaac Corporation) credit scores are determined by several different factors including payment history, amounts owed and length of credit history. History length makes up 15 percent of your total score, so even a year or two added or subtracted can make a difference.
Credit cards also add to your total available credit. Even if you don’t plan on using the card anytime soon, the fact that you have another $X amount of credit to your name, and that’s a good thing.
As with every rule, there are some exceptions. If you have a card with an annual fee that’s hurting more than helping, close it. Otherwise, pay it off and leave it open. You’ll be glad you did.
