Will Canceling an Old Credit Card
Hurt My Credit Score?

Q:  One of my credit card companies wants to cancel a dormant credit card that I have not used in over 3 years. Should I cancel the card myself or should I let them cancel it? I don't want to hurt the credit score that I have worked so hard to obtain.

A:  If you'd like to protect your credit score, it would be best to not cancel your credit card at all. There are two reason for this:

1.  30% of your credit score is based on "Amounts Owed".  Very simply, this looks at how much total credit is extended to you and then how much of that credit is being used. This is frequently referred to as your credit utilization ratio. Let's say that between all of your credit cards you have $15,000 in total credit and your oldest card is $5,000 of that. If you cancel your card you'll only have $10,000 in total credit. That means if you owe $7,500 of the $10,000 you have a 75% credit utilization ratio. However, if you keep the old card you would only owe $7,500 out of $15,000 – i.e. 50% – a much better ratio.

2.  15% of your credit score is based on the length of your credit history. Your history is comprised of the how long you've had your credit cards, including the age of your oldest card and the average age of all your accounts. So if your card is 10 years old now and you cancel it, it will never help you out in the future by being 11, 12 or 15 years old.

That's why it's a good idea to keep your oldest credit cards open. In general, a better credit utilization ratio and longer credit history – helped out by the age and credit limit of your oldest card – will help you credit score. If you need to charge a couple of items a year on the card to keep it open, it's probably worth your while to do so. (To learn more about what else makes up your credit score, take a look at this previous blog.)

It's also smart to keep an eye on your credit reports and scores. By being aware of your credit history, you can make sure that's it's accurate. Errors on your credit report can negatively affect your credit score, so the sooner you know about them and can correct them the better. In addition, you can catch any fraudulent activity (such as identity theft) before it progresses.

The easiest way to stay in touch with the everyday changes of your credit reports is to sign up for a credit report monitoring service like our top rated Identity Guard. Right now they are offering NextAdvisor readers a free 30-day trial and 25% off the subscription price – a great deal. You'll also get all 3 of your credit scores for free when you sign up and they are yours to keep, even if you cancel during the trial period.

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