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What to Do With an Old Credit Card: A Guide from a Financial Veteran

So, you’ve got a credit card gathering dust in your wallet or lurking in the back of a drawer. The annual fee might be too high, the rewards no longer appealing, or maybe you’re just streamlining your finances. The big question is: What to do with it? The short, sharp answer: close it responsibly, if possible, or downgrade it to a no-fee option. If neither is feasible or desirable, freeze it and monitor it closely. But the devil, as always, is in the details. Let’s dive deep.

Understanding Your Options: A Step-by-Step Guide

Before you reach for the scissors (or the delete button), let’s thoroughly explore your options. A hasty decision could inadvertently impact your credit score.

Option 1: Closing the Account

Closing a credit card account is often the most straightforward solution, but requires careful consideration.

Check Your Credit Utilization Ratio: This is the percentage of your total available credit that you’re using. Closing a card reduces your overall available credit, potentially increasing your utilization ratio. Ideally, you want to keep this below 30%. A higher ratio signals to lenders that you might be overextended. Calculate your utilization ratio before closing the card.
Impact on Credit History Length: A longer credit history generally benefits your credit score. If the card you’re considering closing is one of your oldest, closing it could shorten your average account age, slightly impacting your score. The effect is typically minimal, especially if you have other long-standing accounts.
Reward Points and Balances: Redeem any outstanding reward points or cash back before closing the account. Transfer any remaining balance to another card with a lower interest rate or pay it off entirely.
Contact the Issuer: Call your credit card issuer to officially close the account. Confirm they will report the closure to the credit bureaus as “closed at customer’s request.” Keep a record of the conversation, including the date and time.
Follow Up: After a month or two, check your credit report to ensure the account closure is accurately reflected. You can access your credit reports for free at AnnualCreditReport.com.

Option 2: Downgrading the Card

Downgrading involves switching to a different card within the same issuer’s product line, often to a card with no annual fee or a different rewards structure.

Explore Available Options: Research the different card options offered by your current issuer. Look for a card that better aligns with your spending habits and financial goals. Many issuers allow you to view available cards online or by contacting customer service.
Maintain Your Credit Line: Downgrading allows you to keep your existing credit line, which is a major advantage. This avoids reducing your total available credit and potentially increasing your credit utilization ratio.
Keep Your Account History: Downgrading preserves your account history, helping to maintain a longer average account age, which is beneficial for your credit score.
Contact the Issuer: Call your credit card issuer to inquire about downgrading your card. Explain your reasons for wanting to switch and ask about the terms and conditions of the new card.

Option 3: Freezing the Card and Monitoring It

If closing the card might negatively impact your credit score and downgrading isn’t an option, or you simply prefer to keep the account open for potential future use, consider freezing the card.

Physically Secure the Card: Cut up the card and destroy the pieces, especially the magnetic stripe and the security code on the back.
Set Up Account Alerts: Enable transaction alerts through your credit card issuer’s website or mobile app. This will notify you of any activity on the card, allowing you to quickly detect fraudulent charges.
Monitor Your Credit Report: Regularly check your credit report for any unauthorized activity. You can access your credit reports for free at AnnualCreditReport.com.
Review Your Statement Regularly: Even if you’re not using the card, review your monthly statement for any suspicious charges or fees.
Consider Setting a Zero-Dollar Spending Limit: Some issuers may allow you to set a temporary spending limit of $0 on your card, essentially rendering it unusable until you manually increase the limit. This can be a powerful tool for preventing unauthorized use.

The Importance of Responsible Credit Card Management

Regardless of which option you choose, remember that responsible credit card management is crucial for maintaining a healthy credit score and financial well-being. Pay your bills on time, keep your credit utilization ratio low, and regularly monitor your credit report for any errors or fraudulent activity.

Frequently Asked Questions (FAQs) About Old Credit Cards

1. Will closing a credit card always hurt my credit score?

Not always. The impact depends on factors like your credit utilization ratio, credit history length, and overall credit profile. If closing the card significantly reduces your available credit and increases your utilization ratio, it could negatively affect your score. However, if you have other credit cards with ample available credit and a long credit history, the impact may be minimal.

2. What if I have a balance on the card I want to close?

Ideally, pay off the balance before closing the card. If you can’t, consider transferring the balance to another card with a lower interest rate or a 0% introductory APR. Closing the card with a balance will not eliminate your obligation to repay the debt.

3. Can I reopen a closed credit card account?

Generally, no. Once an account is closed, it’s usually permanently closed. You would need to apply for a new credit card with the same issuer.

4. Is it better to close an old credit card or leave it open with no balance?

It depends. If the card has an annual fee that you’re unwilling to pay, closing it or downgrading is usually the best option. If the card has no annual fee and you have a long history with the account, leaving it open (but unused) can help maintain your credit history length. However, monitor the account for inactivity fees or potential fraudulent activity.

5. How long does it take for a closed credit card to disappear from my credit report?

Closed accounts typically remain on your credit report for up to 10 years, which can actually benefit your credit history.

6. What is the difference between “closing” and “canceling” a credit card?

The terms are often used interchangeably. Both mean you are permanently ending the credit card account. Make sure you understand the credit impact of the move.

7. What should I do if my credit card issuer won’t let me downgrade my card?

If the issuer is unwilling to downgrade, consider closing the account and applying for a new card with a different issuer that better meets your needs.

8. Can my credit card issuer close my account without my permission?

Yes. Credit card issuers can close accounts due to inactivity, missed payments, or other reasons specified in your cardholder agreement. They are required to notify you if they close your account.

9. What happens to my reward points if I close my credit card?

You typically forfeit any unredeemed reward points when you close a credit card account. Always redeem your points before closing the card. Some cards allow you to transfer points to another card within the same issuer’s product line.

10. Should I close a store credit card that I rarely use?

If the card has no annual fee and a decent credit limit, leaving it open might be beneficial for your credit utilization ratio. However, if you’re tempted to overspend at the store, closing the card might be the more responsible choice. Always consider the terms and conditions of the card, including any inactivity fees or other charges.

11. What if my old credit card has a low credit limit?

If the card has a low credit limit and is one of your older accounts, closing it could negatively affect your credit utilization ratio and credit history length. Consider downgrading it to a no-fee option or leaving it open (but unused) to maintain your overall available credit.

12. How often should I check my credit report after closing a credit card?

Check your credit report a month or two after closing the card to ensure the closure is accurately reflected. Continue to monitor your credit report regularly (at least once a year) for any unauthorized activity or errors.

By carefully considering these options and understanding the potential impact on your credit score, you can make an informed decision about what to do with your old credit card. Remember, responsible credit card management is an ongoing process that requires vigilance and proactive planning.