Canceled Oldest Credit Card

I did the unthinkable. I canceled my oldest credit card. The conventional wisdom says this is a no-no. But I did it anyway because I’m a firm believer in simplifying finances. I want to keep my financial life simple.

Doesn’t it hurt my credit score? Maybe. The argument against closing the oldest credit card account is that it maintains a long credit history. But closed accounts don’t simply drop off the credit report. I have on my credit report accounts I opened 15 years ago and subsequently closed 12 years ago. This will just add to the list of accounts I opened and then closed. As far as I can tell, the history is still there if anybody cares to read the credit report.

[Update]: See follow-up post: Closing Oldest Credit Card Did Not Hurt My Credit Scores

Let’s say closing it does reduce my credit score. So what? I don’t see myself borrowing any money in the foreseeable future. The rate on my mortgage is fixed. I don’t think there is any chance for refinancing unless we have another recession. I will pay cash when I buy a car.

Even if I have to borrow, will my new score prevent me from getting the best rates? I don’t think so. According to the Fair Issac’s brochure Understanding Your FICO Score (pdf), 40% of the population have FICO scores above 750, which qualifies them for the best rates anywhere.

I just don’t see how closing one credit card account knocks me out of the "good credit" league which also includes 40% of the population. If my credit score was 780 before I closed the account and now it becomes 770, hardly anyone cares.

Will my insurance premium increase because of the possible credit score change? Once I again, I don’t think so, as long as I remain in the good credit camp. Will my next employer not hire me because I canceled an unused credit card? No way. If my credit score is under 600, I may get frowned upon by an employer. But if it’s 720, I don’t think any employer will disqualify me simply because of my credit score.

I think the media makes people obsessed about their credit scores. People have a competitive spirit. Everybody wants to get the highest score and beat their peers. In reality, whether one has a score of 810 or 770 hardly matters, as long as the score is considered "good." And "good" isn’t that hard to qualify for. We are not talking about the top 10% or top 20%. It’s actually top 40% or top 50% (at a typical 720 cutoff score). If someone has an above average credit score, there’s little to worry about. Hard pulls, soft pulls, closing unused accounts, whatever, it doesn’t matter. I’m not going to manage my financial affairs around some credit score formula.

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Comments

  1. Brad says

    I don’t know precisely what FICO uses in their calculation– nobody does outside of FICO– but in all likelihood they measure age of oldest OPEN trade as well as age of oldest trade. Which of those comes into your score is not known.

    You will take a hit in another area though– you lose some of your total revolving limit. The higher that limit is, the better off you are, generally. If the limit on that card was a significant chunk of your overall limit, the account closure could contribute to a lower score.

    But if your credit is very good overall, I doubt closing this account will have much effect. Most variables in credit scoring are used in “buckets” anyway; so if the age of your oldest trade>x, you’ll be treated the same no matter how old it is– as long as it’s more than x. Same goes for limits and utilization. So it’s actually possible that it won’t change your score by one point– and very likely that a change would be just a few points. So you’re probably right not to worry about it.

  2. arvind says

    Is it true that whether you run or multiple credit checks in one month time frame your credit score is decreased by the same amount?

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