Should I cancel my first of five cards, which has a $300 limit?
I currently have five credit cards, four of which total $11,500 in credit, the other is a $300 line. I’m a recent graduate not making tons of money, so I don’t spend more than $6k per year on things other than rent/utilities.
I’m nowhere near utilizing the full potential of the cards with high limits (I try to purchase everything on the cards with rewards, then pay them off immediately). The $300 card seems to be a waste of time, but it is my oldest line (5 or so years). The other cards are all 1-3 years old.
I know that having long-standing lines is good, but for such a low limit card, is that actually still true? Should I keep this card and make the occasional $30 purchase, or cancel the line? How does it affect my credit score? I’m only keeping it and occasionally using it to have the long-standing account open. But I’d rather not have it if I don’t actually need it.
PS – I know that the oldest card won’t actually fall off my report for many years.
Closing your oldest revolving account will lower your average age of accounts and hurt your score. No ifs, ands, or buts. The amount it drops is hard to tell, and it may only be a few points if your other cards are fairly old as well.
While the FICO scoring algorithm is proprietary and hard to predict, you can use the official FICO Simulator to estimate the impact. Based on the information you provided (5+ cards, oldest card 5 years), your estimate is 750-800. Performing the same estimate and only changing the number of cards and age (2-4 cards, oldest card 2-4 years), the score estimate drops to 735-785. Both of these estimates assume you have 9% or less utilization. You can probably estimate that your score will drop at least 15 points.
However, it may not matter to you whether your score is maximized. Once you get above a certain FICO score, it doesn’t matter. For example, I recently refinanced a vehicle and asked the loan officer about their lowest APR, and found out that they required a 780 FICO for it. Kind of like the difference between getting a 91 or a 99 in a class, an A is an A.
Some other factors you may want to consider before you make your choice:
If you want to close the card, close it. The impact on your credit score will be minimal, if any, and the impact on your life will likely be even less.
First, as you noted, the history from your card does not disappear when you close the card; it will stay on your credit report for as long as 10 years. By that time, you’ll have many years of on-time payments from your other cards, and the loss of this one card won’t be significant.
Because the card has a low credit limit, it won’t have much effect on your credit utilization numbers, either.
Finally, your credit score might just be high enough that a small drop will have no impact on your financial life whatsoever.
In my opinion, hanging onto a credit card you don’t want just to try to attain some type of high score is pointless. Close the card.
Your credit report is composed of different factors and each has a different weight. Payment history has the biggest weight, at 35%, while length of credit history is 15%. So together, these two factors make up 50% – there are 5 factors total. Given that your card is your oldest card, and assuming you’ve made on time payments on that card, it does have an influence on your credit report/score.
I would not close the card, and use it to make occasional purchases. I have a card like that where I only use it to make iTunes purchases – at most a couple bucks every few months.