You’ve embraced the Travel Hacking lifestyle and now have a stack of credit cards to manage and grow. Read on to learn why I suggest you don’t cancel your oldest credit card.
Your Credit Score
Earlier, I wrote about what goes into your credit report. I suggested you get a free account with Credit Karma. It’s important to know what’s in your credit report. Also, knowing what impacts how the score is calculated will help you move on in accumulating travel hacking credit cards.
Five Key Credit Score Components
Here are the five key items the credit bureaus use to calculate your credit score.
- Payment History
- Credit Utilization
- Length of Credit History
- New Credit Inquiries
- Credit Mix
Let’s focus on numbers one and three: Your Payment History is important because the banks want to see that you pay your bills on time. This shows them that you are responsible and likely a good credit risk.
Combine this with Length of Credit History. The longer your credit history, the more data the credit bureaus and banks have to evaluate you as a credit risk.
I’ve written about this in this post: The Elephant in the Room. Credit Utilization is the percentage of your outstanding credit that you use on a monthly basis. Outstanding credit is any loan, mortgage, credit line, credit card and other instruments of credit. The lower your credit utilization percentage the better in the eyes of creditors.
Your Oldest Credit Card
Now let’s go back to that oldest credit card. Here’s why I say “Don’t Cancel Your Oldest Credit Card”! We’ve just established that banks want to see a long credit history and a great payment history. They also want to see a low credit utilization percentage. Your oldest credit card helps in all three areas.
If You Cancel Your Oldest Card…
If you were to close your oldest credit card, here’s what would happen:
You will shorten your credit history. You’ll also remove payment history data from your credit report. Finally, you’ll lower your total outstanding credit. This in turn, will raise your credit utilization percentage. Banks want to see a low credit utilization percentage. Now do you understand why I tell you “Don’t Cancel Your Oldest Credit Card”?
Why Close Your Oldest Credit Card ?
You may be concerned with having too many credit cards to manage. There could be an annual fee that you don’t want to keep paying on that oldest card. It’s likely you have moved on to using other credit cards regularly. No worries, there are options for you.
Oldest Credit Cards with No Annual Fee
If there’s no annual fee on your oldest credit card, keep the account open. Use the card a couple of times a year and pay the balance in full and on time. The rest of the year, keep your oldest credit card in a drawer.
Oldest Credit Cards with Annual Fees
If there is an annual fee you can call and ask if there is any way to waive the annual fee. Also call to see if there is any sort of retention offer. The bank may extend you bonus points for a specific minimum spend amount. Those bonus points may be worth enough to cover all or part of the annual fee.
You can also ask to downgrade your oldest credit card to a no-fee version of the card with the same bank. This preserves your credit line. This keeps your credit utilization percentage low. Again, use the card a couple of times a year to put some activity on the card. The rest of the year, keep the card in a drawer and certainly out of your wallet.
Cancel the Card as a Last Resort
If you feel you must cancel the card, call the credit card company. Ask if they will move your credit line to another credit card you intend to keep open with that bank. This really is a last resort. I don’t recommend this. You still lose your long credit history and payment history. This will hurt you in the long run. Getting more travel hacking credit cards will become much more difficult. Again, only do this as a last resort.
The Bottom Line
Don’t Cancel Your Oldest Credit Card! Do everything you can to keep your oldest credit card account open.
Have you thought about closing your oldest credit card account? What did you do to keep it open. Scroll down and leave a comment.
Note that I am in no way affiliated with Credit Karma.