Think Twice Before Getting Rid of an Old Credit Card

Chances are, you've probably got a few old credit cards sitting unused in your purse or wallet. These cards may be the first credit card you ever opened to help you establish credit, or maybe you have a couple of department store cards you opened to get a discount on your purchases and haven't used since. Since they're not being used, you may as well cancel them, right? Not so fast.

Cancelling old credit cards can affect your credit, so it's important to consider the ramifications of deleting an old credit card.

How Deleting Credit Cards Can Be Harmful

Deleting old cards can be harmful to your credit score in a number of ways. Before we dive into them, it's important to understand how your credit is calculated. A credit score is broken down into five main categories:

• Payment history (whether or not you pay your bills on time)
• Outstanding debt/available credit (how much debt you have and how close to the limit it is)
• Length of credit history (how long you've had credit)
• New credit accounts and applications (how new your accounts are and how many times you've applied for credit)
• Types of credit (whether you have different types of credit, such as installment loans or revolving credit)

One of the ways deleting credit cards, even if you don't carry a balance on them or use them, can bring you score down is by potentially shortening the length of your credit history.

Let's say you've had a credit history for about 10 years. The first credit card you opened was a store credit card, and that's the only type of credit you used to establish credit until two years later, when you got a different credit card and started opening up more lines of credit. By deleting the first credit card you have, your credit history is now only 8 years. Because the length of credit makes up 15% of your score, you're likely to see a drop in your score.

Deleting old cards can also be harmful because doing so reduces your total amount of available credit. When it comes to credit, the closer you are to your credit limits, the lower your score will be. For example, a person who has 4 maxed out credit cards is going to have a lower score than a person who has the same number of credit cards but keeps the balance below 30%. If you delete old credit cards, suddenly the amount of available credit goes down while your debt remains the same. As a result, you're likely to see a drop in your score as well.

When Deleting Credit Cards Is OK

That's not to say that it's always a bad idea to delete your old credit cards. In some cases, it can even be helpful. You may want to consider deleting an old card or two if:

• You're tempted to use it. Trying to get debt and spending under control is difficult if you have a zero-balance card taunting you from your wallet. If you feel the urge to start charging up your card is getting to be too much, then go ahead and delete it. The temporary dip in your score is better than incurring more debt.
• Your credit history is already established. If your credit history is long and you already have a good credit score, deleting an old card probably won't make that big of a difference.

Getting rid of old credit cards may seem harmless, but in reality it could hurt your score. Carefully weigh the pros and cons and consider its effect on your overall credit before you delete your old cards.