Sometimes it pays to break the rules.
Most experts advise against closing old credit cards. And there’s very good reason for that, because closing down old cards can undeniably damage your credit score — and reduce your access to credit if you need it.
Despite that general advice, I recently shut down one of my old credit cards anyway. Here’s why.
There is sometimes a good reason to close an old credit card
I closed one of my old credit cards because it had a fairly high annual fee. I opened it to get a generous sign-up bonus, and because it provided some travel perks I was heavily using.
But I’d earned my bonus and I wasn’t traveling very much, so I wasn’t taking advantage of the lounge access or other special features. That made the annual cost too high to justify, so I closed the card — even though it could drop my credit score a bit.
This score decline happens when you close old cards because you reduce the total credit available to you. This adversely impacts your credit utilization ratio (credit used vs. credit available). Closing old cards can also reduce the average age of credit accounts, and a longer credit history is typically considered better. After all, lenders prefer to see you’ve been paying bills on time for a long while.
I was able to take the temporary hit to my credit score because my score was very good already. More importantly, I wasn’t planning to do any major borrowing soon after. Had I been planning to take out a large loan, or if my credit score was on a boundary between fair and good or good and excellent, I probably would have waited to close the card. Better not to risk getting stuck paying higher rates on debt.
Ultimately, if there are legitimate reasons to shut down a credit card, such as a high annual fee, don’t feel like you have to keep it open, despite the general rule. Sometimes, it makes sense to take the temporary hit to your credit — as long as you time it right and don’t do it right before borrowing. Carefully think through the pros of keeping the card vs. the downsides so you can make the choice that’s right for you.