You know that “starter” credit card collecting dust in your wallet? The one with a high interest rate, lackluster benefits, and zero rewards? Now that you’ve upgraded to a better card, you might be tempted to close your old cards and never look back.
Not so fast! Canceling your old credit cards can actually hurt your credit score. Old, unused credit cards can still build credit, but you need to keep them open.
Here’s what to do with your old credit cards.
Keep Them Open
If you keep them open, your old credit cards will positively influence two of the factors that determine your credit score: length of credit history and credit utilization rate.
Length of Credit History
The length of your credit history makes up about 15% of your FICO credit score. Over time, your credit cards and loans contribute to that history. The longer you’ve been managing credit, the better.
If you start closing accounts, they’ll no longer build up your credit history, which is especially valuable when you’re new to credit.
Credit Utilization Rate
Your credit utilization rate makes up roughly 30% of your FICO credit score. Simply put, it’s the amount of your available credit that is tied up in debt. For example, if you have two credit cards with a combined credit limit of $10,000, and your combined statement balance for those cards is $2,000, then your credit utilization rate is 20% (2,000/10,000 = .20).
If you close an old credit card, you’re automatically lowering your credit ceiling. Any balances you carry on other cards will take up a greater percentage of your available credit and raise your credit utilization rate.
A good rule of thumb is to use less than 30% of your available credit.
Get Rid of Interest and Fees
Keeping old credit cards open can help you build credit, but you won’t want to pay for the privilege of doing so.
First, stop making new purchases on your old card. Second, pay down the balance to $0 as quickly as possible. This way, you can avoid accruing interest on recent charges and you’ll have one less payment to keep track of.
You may be tempted to close your card if there’s an annual fee. Before you do, contact your credit card provider and see if they’ll waive the fee in exchange for keeping your account open. Or, try to downgrade your card to a free option with the same credit limit.
Keep Them Secure
Once decide to stop using your card, you should keep it out of the hands of thieves. Even though federal law limits your liability for unauthorized charges to $50 (many credit card companies extend that to $0), you don’t want a thief running wild on your credit card.
Keep your card in a secure place. You don’t need to carry it around in your wallet, but it should be accessible in case of emergency.
You may also want to scrub your old credit card from the internet. If shopping websites or other companies have your old card number on file, consider updating your information. You can replace it with your new card number or even switch to virtual card numbers for greater security.
Even after you take these precautions, your card could still be vulnerable. Read your monthly statements or periodically check your account to make sure your card hasn’t been compromised.
Is There a Valid Reason to Close Your Credit Card?
There are many valid reasons to close an old credit card, even considering the implications for your credit score.
If you are having financial problems and you can’t manage your debts responsibly, you may need to take a break from credit cards altogether. If the credit card company won’t cancel your annual fee, the benefits might not be worth the expense. And if your credit is strong enough to take the hit, you may want to cancel for simplicity’s sake.
Just remember to consider the effect that closing an old credit card will have on your credit.
If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.