Should I keep my old credit card open or close it?

The trade-off with an old card

An old card you rarely use, such as an American Express you opened years ago, does two useful things for your credit record. It adds to your total available credit, and it shows a long history of managing an account. The CFPB says some people keep an old account open, especially if it has a positive payment history, because it may help keep their score higher. Against that you have to weigh any annual fee and the risk of a card you never look at.

When closing makes sense

The CFPB lists three situations where closing an account might be a good decision:

• the card's annual fee or poor terms outweigh the benefits you get from it
• closing it helps you avoid building up debt you can't repay
• you're not planning to apply for credit soon, such as a mortgage, car finance or a new card

If none of these applies, the CFPB warns that closing a card could lower your score rather than raise it. The effect may be temporary or minor, but it depends on the rest of your credit profile.

Why closing can lower your score: utilisation

Part of your score depends on how much of your available credit you use. Close a card and the same balances are spread over a smaller total limit, so your utilisation goes up. The CFPB suggests keeping it at no more than 30% of your total limits, while Experian says UK lenders generally like it below 25%. Experian also notes that UK lenders each calculate their own score, so the impact depends on the lender.

Does closing an old card wipe your history?

Not straight away. In the UK, data about settled and closed accounts stays on your credit file for six years from the date the account was closed, under the credit reference agencies' joint information notice. In the US, Experian says a closed account can stay on your report for up to 10 years after it closed, depending on its status, so its positive payment history keeps helping for a while.

Doing the fee sum

For a card with an annual fee, add up what you actually got from it last year: points or cashback you redeemed, insurance or other perks you used, and things you'd otherwise pay for. If that's less than the fee, you're paying to keep a line of credit open. Before you close, ask the card company whether you can move to a no-fee card on the same account, which may keep the history and the limit. Experian notes that providers often offer incentives or a different card when you try to cancel. Weigh them, but don't be talked out of a decision you've made.

If you decide to close it

1. Pay off the balance or move it to another card first. If you close with a balance, the CFPB says you still have to repay it on schedule and interest can still be charged. Experian says a UK account stays open on your report until it's paid off.
2. Call the card company and follow up in writing. Cutting up the card or cancelling the Direct Debit doesn't close the account, and Experian warns it could lead to missed payments, a default or even a County Court Judgment.
3. Move any subscriptions that are charged to the card.
4. Check your credit report a month or two later to make sure the account shows as closed with a zero balance.

If you keep it

Put a small regular charge on it, such as a streaming subscription, and clear it in full every month. That keeps it active. The CFPB also suggests watching an unused card's statements for identity theft and unexpected fees.

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