How to Know When to Close an Old Card and When Not To

Learn when closing an old credit card helps or hurts your credit score and finances.

1. Calculate what the card actually costs you. Add up annual fees, interest charges from carried balances, and any other fees you paid in the last 12 months. If it's a rewards card, subtract the cash value of rewards you actually used. This net number tells you if the card is costing or earning you money.
2. Check if you can downgrade instead of closing. Call the card company and ask to switch to a no-annual-fee version of the same card. Many issuers offer basic versions without fees. This keeps your account history intact while eliminating costs.
3. Consider the impact on your credit utilization. Closing a card reduces your total available credit, which can raise your utilization ratio if you carry balances on other cards. If the card you're considering closing represents more than 30% of your total credit limits, pay down other balances first or keep it open.
4. Evaluate your credit history length. Your oldest accounts help your credit score by showing a long payment history. If the card is one of your three oldest accounts, keep it open even if you don't use it. Make a small purchase every 6-12 months to prevent closure due to inactivity.
5. Make the decision based on clear rules. Close cards with annual fees over $95 that you can't downgrade and don't use enough to justify. Keep all no-fee cards open, especially older ones. For cards between these extremes, close them only if the annual fee exceeds your rewards value by more than $50.