Should You Close Your First and Oldest Credit Card?
A credit card is an excellent tool for establishing a credit history and many people apply for their first credit card as a young adult.
Using a credit card responsibly adds positive credit history to your credit report. And as you build a strong credit score, it becomes easier to qualify for a loan to buy a house or a car.
After you’ve acquired a few credit cards, however, you might think about simplifying and getting rid of an account.
If some of your newer cards have more attractive features, your first credit card could end up on the chopping block. But should you cancel this card?
Conventional credit card advice says no, but this rule doesn’t always hold true.
Why You’re Taught to Keep Your First Credit Card
As you educate yourself on different ways to manage credit, you’ll likely stumble upon advice saying you should never cancel your first and oldest credit card.
There are good reasons behind this thinking. But before we dig into this, it’s important to understand how credit scores are calculated.
We're going to focus on FICO credit scores because they are used by more than 90 percent of U.S. lenders.
Your credit score is a three-digit number ranging from 300 to 850. This number says a lot about your creditworthiness.
People with the highest scores pay their debts on time, so it’s usually easier for them to be approved for new lines of credit.
But credit scores aren’t determined by payment history alone. A total of five factors play a role in your personal score.
- Payment history. This is the biggest factor, accounting for 35 percent of your score. Your credit report includes details about judgments, collection accounts, bankruptcy, overdue payments, and current account standings. A creditor can report a late payment to the credit bureaus when your payments are 30 days past due. Each late payment on your credit report lowers your credit score and remains on your report for up to seven years.
- Amount you owe. How much you owe accounts for 30 percent of your credit score. This includes how much you owe on each separate account, as well as how much you owe across all your accounts. This factor also takes into consideration the number of accounts you have with balances and the amount you owe compared to your available credit line.
- New credit. This accounts for 10 percent of your credit score and factors in your number of recent credit inquiries and recent new accounts. Too many inquiries on your credit report can lower your credit score. Therefore, only apply for new credit when necessary.
- Types of credit. It’s also important to diversify and have a credit mix. This demonstrates an ability to manage different types of credit. So rather than have a single credit card, you might have a credit card, a retail account, and perhaps an installment loan (mortgage or auto loan). Credit mix makes up 10 percent of your credit score.
- Length of credit history. The length of your credit history makes up 15 percent of your credit score. Basically, the longer you have a credit account open, the better your credit score. For this reason, many credit experts discourage closing your oldest credit card.
What Happens When You Close Your First Credit Card?
Since the length of your credit history accounts for a percentage of your credit score, keeping your first credit card open makes sense from a scoring standpoint.
This isn’t to say you “can’t” close this credit card. But you need to understand the possible ramifications of this decision. Getting rid of your first credit card could potentially hurt your credit score in two ways:
1. Loss of available credit
Closing a credit card will mean a loss of your credit limit and available credit. And once this credit limit disappears, your credit utilization ratio could balloon.
This ratio is the percentage of your total amount owed on credit cards compared to your total credit limit.
To maintain good credit, you should use no more than 30 percent of your total available credit.
Example: You have two credit cards and your oldest credit card has a $5,000 credit limit and a zero balance.
Your second credit card has a $2,000 credit limit and a balance of $1,500. Given this example, your total credit limit is $7,000 and your total amount owed is $1,500. This equals a total credit utilization ratio of 21 percent, which isn’t too bad.
But if you were to cancel your oldest credit card and lose your $5,000 credit limit, your total credit limit drops to only $2,000.
Since you owe $1,500 on this card, your utilization ratio jumps considerably to 75 percent. A higher utilization suggests to creditors that you’re a risky borrower and lowers your credit score.
2. Age of your account stops growing
Remember, the length of your credit history contributes to 15 percent of your credit score.
So along with the risk of increasing your credit utilization ratio, closing your oldest account also means that the age of this account stops growing.
It’s important to note that this card’s positive history isn’t erased from your credit file.
But with the age of the account no longer growing, you might see a slight dip in your credit score after closing the account, and your credit score may begin to grow at a slower pace.
The latter is more likely to occur when there’s a considerable age difference between your first account and your next oldest account.
When Does It Make Sense to Close Your First Credit Card?
But despite the possible negative effects of closing your first credit card, getting rid of this card is sensible in some situations.
You’re paying fees
If your first credit card was a secured credit card or a student credit card, you might be paying a high interest rate. This is common with some credit builder credit cards due to an applicant’s lack of credit history.
As your credit score improves and you’re able to qualify for cards with more desirable terms, some of your newer cards may feature a lower interest rate and no annual fee.
If your oldest card is significantly more expensive, it makes sense to close this account and save money.
Cleaning up your credit lines
Maybe you feel that you have too many credit cards and you want to scale back to only one account.
It also makes sense to choose the card with the better terms, which might not be your first credit card.
Better options available
Before getting rid of your oldest credit card, consider the age of your other lines of credit.
Maybe you received your first credit card at 18 and then acquired another credit card a few months later.
Since both accounts are roughly the same age, getting rid of your first credit card won’t cause too much damage to your credit score.
Low debt utilization
If you don’t owe a balance on any of your credit cards, closing your first credit card will not affect your credit utilization ratio—it’ll remain at 0 percent whether you keep or close an account.
You may, however, lose a few points because the age of this account will stop growing. But the damage should be minimum and short-lived.
When You Shouldn’t Close Your First Credit Card
Although closing an older credit card doesn’t affect everyone’s credit score the same, there are situations when it’s not a good idea to get rid of this account.
You have a new or young credit accounts
Don’t cancel your first credit card if you’ve recently established a credit history or if you don’t have many credit accounts in your name.
The best credit is old credit.
The average age of credit among those with the best credit scores is around 11 years, according to FICO.
If you’re shooting for an excellent credit history, don’t close your first credit card until your next oldest credit account is also very old to protect your credit score.
You’re about to apply for a loan
Because closing your first credit card can cause a dip in credit score, never close an account before applying for a major loan such as a mortgage or an auto loan.
Even if your credit score only drops by 15 points, this could potentially result in a higher interest rate.
A higher rate will increase your monthly payments and the amount you pay in interest over the life of the loan. If you’re adamant about getting rid of your first credit card, wait until you close on your loan.
There are no hard or fast rules regarding when to close your first credit card account.
Even so, you need to consider how this decision could impact your credit score.
Whatever you decide, the key is minimizing credit damage. This might include not closing the credit card until your other credit accounts age, or until you pay off your credit card balances to avoid a jump in your credit utilization ratio.