[Disclosure: Cards from our partners are mentioned below.]
Have you ever wondered why some credit cards have a “Member Since” date printed on the front? There are a handful of credit card issuers, notably American Express, that prefer to prominently note how long customers have held their account, but does this date matter?
“The Member Since date definitely matters,” Melanie L. Backs, director of public affairs at American Express, said in an email. “Many of our offers are based on our card members’ spend behavior. The longer they’ve been with Amex, the better we know them and the more we can tailor our offerings.”
But beyond the cardholder offers an issuer may present to you, does the age of your credit card accounts matter?
How Age Impacts Your Credit
Your “Member Since” date may be landing you certain offers from American Express, but the ages of all your credit cards matter when it comes to your credit. The FICO score models, for instance, use the length of your credit history to account for roughly 15% of your score. All other things being equal, the longer your credit history is, the better your score should be.
Length of credit history takes into consideration how long your credit accounts have been opened, including the age of your oldest account, the age of your newest account, and the average age of all your accounts. The FICO formula also uses data from your credit report on how long specific credit accounts have been open, and how long it’s been since you have used your accounts. You can see how the age of your credit is affecting your credit scores for free on Credit.com.
A Reason to Leave Cards Open?
Some people believe that they should never close their credit accounts for fear that it will hurt their credit score, while alternatively others feel that closing their accounts could help them. Unfortunately, the truth is not as simple as either conviction.
In general, it will help your credit score to have your accounts opened longer, but closing an account won’t necessarily tank a good one. Closed accounts in good standing will remain on your credit report for about 10 years and, as mentioned earlier, there are other factors considered when a credit scoring model calculates credit age. There are also other factors used to calculate your overall score that carry more weight, like your payment history, which is used to compute 35% of your FICO score.
In fact, the major risk associated with closing an account score-wise involves potentially negatively skewing your credit-to-debt utilization ratio (how much debt you are carrying versus how much credit collectively and on individual cards has been extended to you), which essentially accounts for another 30% of your FICO score. (Basic rule of thumb is to keep your amount of debt ideally below 30% of your available credit (10% is best), so if a card has a particularly high credit limit and you’re maxing out other cards, you may want to pay those balances down before going ahead with the closure.)
Still, the effect on your credit age should only play a small part of your decision to close an account. For example, there is little reason to continue paying an expensive annual fee for a card that you no longer need, just to preserve an additional line of credit on your account, and slightly increase the average age of your accounts. Instead, you might consider replacing that account with a credit card with no annual fee that can be kept open and in good standing for an extended period of time.
Moreover, there are some credit card users who are unable to control their spending. For these cardholders, having an account open with an unused line of credit can be a temptation to make unnecessary purchases and incur debt. If this is the case for you, then you may be better off closing an account than leaving it open to increase your credit history. (Remember, missed payments and high balances will be more detrimental to your overall credit standing.)
When you take into account both the advantages and potential drawbacks of keeping your credit card accounts open, you can make the right decision regardless of the “Member Since” date printed on your card.
More on Credit Cards:
- Credit.com’s Expert Credit Card Shopping Tips
- An Expert Guide to Credit Cards With Rewards
- How to Get a Credit Card With Good Credit
Image: Ingram Publishing