Most people have more than one credit card, and one of those often is the first they ever received.
It may be out of habit or sentiment, or the simple laziness of not wanting to do the work of finding a new perfect match, but many people hold on to their first credit card for years. The average age of an open credit card account is eight to nine years, according to Experian, a credit-reporting company.
As people age they tend to hold on to cards despite their high fees or lack of valuable rewards. Millennials between ages 24 and 39 have about three credit cards on average, whereas baby boomers have an average of four to five, according to 2020 data from Experian.
Some people may be considering letting go of a card after paying down their card debt during the pandemic or realizing that the rewards of a certain card are no longer useful. Here’s what you can do about your fruitless card and what you need to know about the process.
Break Up, but Get the Upgrade
While your first card might not be doing much for you in rewards, it doesn’t mean you have to throw it all away.
Keeping your first card allows you to keep your credit limit intact and your utilization (the percentage of credit you use) lower. Closing the card account could mean tossing out some of the positive credit benefits.
Ted Rossman, senior credit card industry analyst at Bankrate.com, said he wouldn’t encourage people to pay an annual fee just to keep a card open that they don’t use or benefit from. He instead suggests calling the company to see if they can switch you to another card that has a lower annual fee (or no annual fee), or one that has rewards that are a better match for how you spend your money.
Customers need to phrase it as a “product change” when they call the card company. A product change involves getting a new card with the same card provider and it typically allows a cardholder to keep everything else the same, including the account number and available credit.
When you call, confirm with the credit card company that your credit history will be rolled over to the new card. This will ensure all the good credit information carries over and can continue to be built upon. With FICO scores—a score that quantifies the likelihood that a borrower will repay money on time—a closed credit card account that was in good standing can stay on your credit report for up to 10 years, meaning the good information follows you.
In addition, card companies often won’t do another hard credit check when they do a product change and it won’t affect a person’s credit score.
“This is a good way to kind of seamlessly transition from one thing into another one that fits you better,” said Mr. Rossman.
One drawback to this strategy is that it usually doesn’t result in a signing bonus—such as points or perks—that are common with new card accounts, but preserving your credit history is enough of a perk.
Just Letting Go
Timing matters when you’re closing a credit card.
Canceling a card and altering your credit utilization around the time of applying for a loan or a mortgage could affect your credit and eligibility. Wait until after you are approved for a loan to make any changes to your cards. Lenders don’t like to see variability when looking at your credit, said Mr. Rossman.
“Many people may not be aware that canceling a credit card hurts your credit score,” said Jill Gonzalez, an analyst at WalletHub. “When you close a credit card, the total amount of your available credit drops. This in turn causes your credit utilization ratio to rise, which is bad for your score.”
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Utilization is the ratio of credit used in relation to a person’s credit limit. When a person closes a card their overall credit limit—which takes all credit cards into account—goes down and the amount used goes up. The amount of money people owe and how close they are to their credit limit makes up about 30% of their FICO score.
A lot of people believe that closing a credit card gets rid of the associated credit history, which accounts for 15% of a FICO score, but that is false, said Ethan Dornhelm, vice president of scores and predictive analytics at FICO. A card cancellation is more likely to affect your credit mix, he said. Credit mix—how a consumer is managing different types of credit products—accounts for 10% of a person’s FICO score.
“If your first credit card is the only credit card you have and you close it, that’s going to have a substantial impact on your score,” he said.
The exact amount of credit-score points a person stands to lose by closing a card varies widely because people’s credit utilization differs and other factors play a role in calculating a credit score. You can check how canceling a card will affect your own score by using the credit score simulator on myfico.com.
You should also note when kicking a card to the curb you risk losing reward points or cash-back credits issued by the card company.
Keep the Card, but Beware
If you decide keeping a longtime card is the best option, be aware of the risks.
Cards that are unused for long periods (check with your card company, as the amount of time varies) are sometimes deemed dormant by issuers, and will be closed. You will be notified when the account is closed, but at that point the decision with what to do with the card is out of your hands.
“It’s a liability for them,” said Mr. Rossman, since dormant cards can suddenly spring to life with fraudulent charges.
Once the card is canceled your credit score will possibly dip.
Keep the Card, but Upgrade Your Habits
The best way to keep an old card active is to find a purpose for it, even if it’s only occasional.
“In general, to keep a card active you should use it at least once every three months,” said Ms. Gonzalez. “Though not all credit card companies have the same policies for credit card inactivity, none of the major companies will close your account if it’s been inactive for less than three months.”
Check with your card provider to see what its activity limits are for keeping a card active.
John Ulzheimer, a credit specialist who formerly worked for Equifax and Fair Isaac Corp. , the company behind FICO scores, suggests designating the card for something recurring, like paying for your dry-cleaning or picking up the bar tab once the world opens back up. You can then turn right around and pay the bill online before the payment date and before it hits your credit report. He calls this the “ethical credit score hack.”
“You get the value of using your credit card, you’re still getting your rewards points, you get the fraud protection for the card, but you’re bypassing all the bad,” said Mr. Ulzheimer.
Write to Amber Burton at Amber.Burton@wsj.com
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