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Published: Nov 24, 2021 7 min read
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This is an excerpt from Dollar Scholar, the Money newsletter where senior writer Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.

They say you never forget your first.

My first screen name? DanceGal444. My first PG movie in theaters? Dinosaur. My first roller coaster? Woody Woodpecker's Nuthouse Coaster at Universal Studios in Orlando.

These experiences all hold a special place in my heart; they have great memories associated with them. But there are other firsts in my life that, while I won’t forget them, I don’t treasure quite so much. Like my first credit card.

I’m increasingly dissatisfied with my BankAmericard Visa Platinum Plus, which I opened at my bank in 2014 after graduating college. I didn’t know anything about credit cards, and I didn’t have much money, so it worked well enough at the time. But now that I’m older, wiser and have an AmEx, I want to get rid of it. The perks are non-existent, so I rarely use the card, and I’d kind of like to just shut it down and never think about it again.

Here’s the catch: I also don’t want to tank my credit score. I know there are a bunch of strings attached when it comes to credit, and I worry I might be shooting myself in the metaphorical foot by closing the account.

Is it OK to close my first credit card? Or do I have to keep it open forever?

I called Bruce McClary, senior vice president of membership and communications for the National Foundation for Credit Counseling, for help. He says it’s a known fact that closing an open line of credit can lower my credit score — and make it harder to get approved for loans or additional lines of credit as a result.

One big reason my credit score might drop in this circumstance is because of my credit utilization ratio, a measure of how much credit I’m using as a percentage of my available credit. It’s recommended for people to always keep their credit utilization ratio at or under 30%.

My credit utilization ratio is calculated across accounts. Say I’ve got two credit cards, Card A and Card B, each with a credit limit of $500. My total available credit is $1,000, so my balances on the two cards combined should ideally not exceed $300. If I put $100 on Card A and $200 on Card B every month (and then pay it off), I’m fine.

But if I close Card A, my total available credit drops to $500. If I continue charging $200 on Card B like I was before, my utilization ratio jumps to 40% — and I start to get into the danger zone.

McClary says the exact formulas for calculating credit scores are a secret, but we do know that amounts owed generally make up 30% of a person’s FICO Score. That’s where my credit utilization ratio comes into play.

Another reason my score could drop if I close my first credit card has to do with the length of my credit history, which makes up 15% of my credit score. FICO says it takes into account “how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts” among other factors.

“If you only have that one credit card account and you’re going to shut it down, you’re essentially shutting down any potential credit activity, and your score would plummet,” McClary says. “You’re essentially putting up the ‘closed for business’ sign on your credit history, and that doesn’t help you.”

I played devil’s advocate with McClary. What if I just leave the card open and stop using it, I asked him. Is that a loophole? Am I a genius?

He says there’s not a huge problem with that approach, but I probably still have to keep paying annual fees on the account, so it might be a costly workaround. He also pointed out that the card issuer might not be a fan of my inactivity — and move to lower my limit or close the account. (This actually happened a lot last summer.)

Also, if I totally ignore the card and don’t even look at the statements, I might not spot the warning signs of a fraudster racking up charges.

Still, “if it’s not costing you in interest and fees, or if there are no other penalties for keeping it open and inactive, keeping it open could make more sense than shutting it down,” McClary says. "It's really up to each individual cardholder."

The bottom line

Closing a credit card is a personal decision. But if my heart is set on it, McClary says I should get my house in order before taking the plunge. I should make sure I have other lines open, my utilization is low and my accounts are all paid as agreed.

I also should time it right. If my score takes a hit from my account closure, it’ll likely take six to 12 months to bounce back.

“There is a little bit of a recovery period you can expect,” McClary adds. “I wouldn’t shut it down right before you apply for a mortgage [or] right before you go to the auto dealer and apply for a car loan.”

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