Closing your credit card intuitively feels like something you should do, especially if you spent the past couple of years paying off your balance, or if you just received a better rewards card. Accumulating one piece of plastic after another seems conspicuous, if not outright profligate. You might reason that the wiser path is to rid yourself of the thing and move on.
And you’d reason wrong. All else being equal, you should hang on to your old credit cards, even if you don’t have any use for them anymore. Even a dormant card is a useful card. That’s because it will help prop up your credit score.
Each credit card comes with a credit limit that you’re allowed to use every month. Credit card companies don’t want you to spend too much of your available credit, lest you become reliant on it to fund your life. Experts recommend spending no more than 20% to 30% of your credit limit on any card. But you’ll also improve your score by using a low overall total of your available credit. So if you keep your spending the same, your so-called credit utilization ratio will go down by keeping your card open, which will show lenders that you have a healthy appetite for credit.
Lenders also like to see a long credit history, which comprises 15% of your FICO score. An account that’s been open a while will buoy your score, and closing it, especially if you’re a relatively new borrower, can prove detrimental.
So that’s the case for keeping your old card.
The case against is rather simple, and it comes down to self-control. If you’ll spend more than you can afford by keeping the card open, close it. A credit card is a tool, but if you can’t use the tool properly, it’s best not to have it at all.