Cancel old card or keep open?

[Bonnie]

What’s best – close an old credit card that I don’t use anymore or keep it open? From what I understand, closing credit cards is not recommended. The problem is that keeping the card open cost me 30$ in annual fee.

I have a Visa credit card that I use constantly. I never carry balance, and I pay the statements in full every month. The card that I want to close is a secured credit card with low limit ($200) that I used only to start building credit.

Any thoughts?

[Tracy Winters]

Cancel it

It is true that closing a credit card may have a small adverse effect on your credit score, but if you’re not using it anyway, than it has no effect on your credit score anyway.

Inactive credit cards do nothing to build your credit score. There is also $30 annual fee that goes down the drain.

Closing credit cards is not recommended for two reasons:

1. It lowers your total available credit, so your credit utilization goes up
2. It make your average credit file “younger”

Both (higher utilization & younger file) may impact your score.

However, in you case it will make no difference.
You credit utilization will not go up because you don’t carry any balance on your active card, so your utilization is 0% anyway
Closing your oldest account may impact your score a little, but if the account our closing is less than 4 years older than your open account, it won’t make much impact.

Closed accounts in good standing remain on your credit report for at least 10 years. Although they don’t count much in your score as open, active accounts, you wouldn’t notice any difference because unused card do nothing to your score either.

Lastly, keeping unused accounts open poses a security risk – they are more susceptible to fraud and identity theft.

My recommendation – close the old unused card via letter. Request a written confirmation that the account is closed and 0 balance. Keep that confirmation forever. This account is certainly not worth the annual fee.

[Author]

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