It’s tempting to cancel old credit cards if your wallet is full of them because you’re always opening new accounts to get the best credit card deals. You get a great introductory offer that lets you do a balance transfer at a very low interest rate, or you get pitches for cash back credit cards with rewards that are too good to pass up. You accept those offers, and suddenly you’ve got more cards than you need.
Think twice before cancelling old credit cards. It may seem logical to get rid of excess credit cards. You might think it’s better for your credit score to have fewer cards, but the opposite is actually true.
Here are three important reasons to keep those old credit cards:
1) Old credit cards raise your credit score because they lengthen your credit history. The FICO credit scoring company explains that 15 percent of your score is based on how long you’ve used credit. Older accounts are more valuable than the new ones you opened for a balance transfer or to take advantage of the best credit card deals. FICO also looks at the last date of account activity, so buy something inexpensive with your old credit cards every few months if they have a zero balance.
2) Old credit cards improve the balance between what you owe and your available credit lines. FICO uses your owed balances to calculate 30 percent of your credit score. You shouldn’t use more than 30 percent of your available credit lines if you want a good credit rating. Cancelling old credit cards removes their credit lines from the calculation, making your debt load look worse.
3) Old credit cards provide a cushion for emergencies. You don’t need to run up a balance on every credit card you own. Stick to using your cash back credit cards as your main form of payment to earn the largest possible rewards. Keep your old cards somewhere safe, where they’re available for when you need unexpected home or car repairs, have to pay a medical or dental bill, or have some other unforseen expense pop up.
Even if you don’t cancel your old credit cards yourself, the issuers might close the accounts if you don’t use them often enough. Banks are forbidden from tacking inactivity fees onto unused accounts, according to the Board of Governors of the Federal Reserve System. However, this rule does not stop them from closing the accounts outright. Prevent this by using your old credit cards every two or three months to buy something you can pay for in full when the statement arrives. Put most purchases on your cash back credit cards. Use the older cards for cheap items.
Ashyia Hill from CreditDonkey says, the only time it’s wise to cancel old credit cards is if you can’t resist the temptation of too much available credit. If you run up high credit card bills that you can’t pay, you hurt your ratio of debt to available credit, and your late payments pull your credit score down even further. In that case, it’s better to cancel your old credit cards, but most of the time it’s better to keep older accounts open and active
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