Credit health is a lifelong goal, one that requires attention and consistent credit use. An improved score means access to lower interest rates, insurance premiums and even high-reward credit cards. As you move forward in life, what happens to credit cards of days gone by? Will neglecting your old accounts affect your future? The short answer: Maybe.
Each credit bureau uses their own method of credit scoring. In general, payment history and credit length have the potential to impact 50% of your total score. Your oldest accounts play a role in these calculations as time lengthens your history and timely payments are recorded on your credit reports. Review the following dos and don’ts as you decide how to manage old accounts. They will help you protect your credit score along the way.
- Do: Remember the value of each credit account. It’s easy to forget about old credit cards as you gain access to newer accounts with better rewards. That said, that first credit card carries more influence than you realize. Consider the following example:
Carrie opened her first credit card just after college in 2006. She plans to buy a home this year and is working on her finances. A friend advises Carrie to close her first credit card because, “Mortgage lenders are wary of too many credit accounts.”
While it’s true that mortgage underwriters don’t like seeing applicants with lots of debt, open accounts are another story. A credit account with a low balance isn’t likely to impact your ability to gain new credit elsewhere. An available limit also improves your credit utilization ratio by increasing your cumulative credit limit (more on that here).
- Don’t cancel cards due to inactivity. Carrie’s first credit card solidifies 10 years of credit experience. Closing her oldest account erases her history, credit length, and available credit, three factors that could significantly lower her score. Dust off your oldest account and use them for small, regular purchases. Pay your balance in full each month to ensure a steady payment history and a positive credit influence.
- Do: Consider your budget needs. In addition to boosting your credit score, reviving an unused credit card can have a valuable impact on your budget. For example, suppose you opened a Visa account in 2004. Your credit score was sub-par and you didn’t qualify for any perks. 12 years of history and an improved score could entice your lender to upgrade your account to include rewards and a lower interest rate, two factors that save you money simply by using your card.
The bottom line: Neglecting old credit cards may not hurt your score drastically, but it won’t help, either. Don’t miss an opportunity to improve your financial strength by building experience and keeping your accounts active.