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Does It Make Sense to Cancel A Credit Card with No Annual Fee?

by on January 26, 2014 · 22 comments

in Credit Cards, Sunday Reader Questions, Video Blog Post

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TPG reader Clayton tweeted me to ask:

@thepointsguy: Is there ever a reason to cancel a card with no annual fee? I have a Macy’s card I used in the past, but now sits in a drawer.”

The largest factor in having a high credit score is paying off your balances on time. But there are several other factors that play a part in your credit score as well, such as the average age of your accounts. So, if you’ve got a bunch of accounts you’ve had open for several years, that can actually help your score.

Main credit score factors

Main credit score factors

Clayton has a Macy’s card from years ago, but he just keeps it in a drawer. I would recommend keeping that account open. There’s no reason not to, as long as you don’t have any automated payments going onto that card that you might forget about and miss a payment. I don’t see a risk in keeping the account open in order and in good standing.

It’s also good idea to have different types of credit lines and not just regular credit cards. Most department stores have charge cards, so it’s a nice idea to have another kind credit line in the mix. So I say keep the Macy’s card open. Don’t use it, but monitor it just to make sure there are no fees or usage there shouldn’t be. Keeping no-annual-fee cards open is a great, easy way to increase the credit history factor of your credit score and thus boost your overall score.

Let me know if you have any other questions by messaging me on Facebook, Tweeting me or emailing me at [email protected]

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Alex R.

    Just keep I’m mind that Macy’s will and has closed credit lines for inactivity over a period as little as six months. So make a small purchase every now and then and pay it off just to keep it active. Maybe a Frango mint! :)

  • Michael Heffner

    I have the Citi no fee Hilton card. One open for two years, another for one… I’d thinking closing one so I can open another would make sense from a churning strategy. For that matter I’d close the newer of the two so the other can continue to drive my age of accounts. I think?

  • Scott C

    I was thinking the same thing, my Best Buy card was closed with no notice for the same without my knowledge.

  • vega25

    I have been monitoring my scores for a while and can report that my score took a 10-point dip when I closed the oldest card that I had. I had had one credit card for about a year or so before getting more, and closing this account sharply lowered the average length of time I had had open accounts for. My other credit cards saw a credit limit increase the same month that I closed this so it did not affect my utilization ratio. Overall, I don’t regret closing it since I really did not want that card any more, and the 10-point dip is something I can live with.

  • ASW

    Yep. Macy’s closed my account because I hadn’t used it in a year. The cashier at Macy’s said I could reopen the account right on the spot with my driver’s license, social security number and some other info. I decided against it because I wasn’t sure if reopening the account meant a hard pull with credit bureaus. @Alex R. is correct in saying buy a mint or something small every so often.

  • Lark

    TPG:

    Can you comment on this? Financial columnist for SFGate / Chronicle.

    Thank you,

    Lark

    “Note: The age of the card you’re considering closing is immaterial to the impact on your credit score. There’s a stubborn myth that suggests closing an old card will cause you to lose the value of the age of the card in your credit scores, which is not true. You still get the age value of the closed card.”

    http://www.sfgate.com/business/networth/article/Answers-on-inherited-home-gift-card-canceling-5175450.php#page-2

    Kathleen Pender is a San Francisco Chronicle columnist. Net Worth runs Tuesdays, Thursdays and Sundays. E-mail: [email protected] Blog:http://blog.sfgate.com/pender Twitter: @kathpender

  • http://osnews.com David Adams

    That may be a myth, but another factor in your credit score is your credit to debt ratio. The more credit you have available, the higher your score. I have about 60 credit cards open, and my score is 827.

  • James

    Lark – this is correct, All cards that are closed keep that life on your credit report, so all accounts that are closed after 1 year are supposed to negatively effect your rating as well. But length of credit history is only 15% of FICO. Closures in good standing drop off after 10 years, and non-good standing accounts drop off after 7.

  • nadball

    Related to David Adams comment… is there a point of diminishing returns with the number of accounts you have open? He is saying that the better credit to debt ratio helps your FICO, which I have always heard as well, but 60 open accounts does seem excessive. Would that number ever start hurting the FICO?

  • disqus_Pt3a3tgeSF

    The number of cards will not necessarily impact your FICO score, but I have heard of lenders denying people new cards because they had too much overall credit already. Some lenders will close cards for non-use after a few months as well.

  • hellopoints

    Hum sometimes

  • hellopoints

    Sorry for the typo below (i don’t know how to erase it!)

    Sometimes, considering the impact of DTI on my credit score, don’t I need to close any credit card, especially if it is newly opened? Put it differently, I am limited in my income, but sometimes I applied for many cards. But the credit score is also influenced by total credit limits divided by my income: So I thought I need to close some.

  • vega25

    The sheer number of cards is not going to hurt the FICO, because FICO does not have a benchmark or an ideal number of cards any individual should have.

  • Caroline

    That may be the case with store cards, I seriously doubt a bank would do that.

  • Rusty Longwood

    Closing a card that’s older than your average card is only going to hurt. Your average age of credit will drop as will your DTI. I would recommend you make a small purchase every 12-18 months just to keep the card open.

  • http://elistoughton.com/ Eli Stoughton

    Right. At a certain point, most banks will have a limit of how much credit they are willing to give you. So, you may need to shift around your credit limits just to open a new card. Additionally, if you have that many cards, you probably will have a lot of hard credit inquiries as well.

  • Brian C. Lee

    There are reports on FlyerTalk occasionally of that happening. It doesn’t appear to happen all that often, but it does happen sometimes.

  • Graydon

    I think the phrase that needs to be used here is average age of accounts (AAoA in credit card speak). You retain the age of that old account even if it’s closed as it stays on your credit reports for 10 years then drops off. So closing a card now only effects you in 10 years and will be used in your AAoA calculations with positive results until it drops. That being said never close your oldest account and keep your second oldest as backup.

    Score drops with closing of card is purely coincidental because that age continues to be factored in to the AAoA. However you can see a score drop because your amount of available credit decreases based on the closing of that card and it DOES effect your debt to available credit ratio (that magical 1% to 4% of usage of available credit). Will not effect score if you cary zero (or nearly zero) balances. But if you carry a balance and you close a card you lose that available credit and your ratio shifts showing more credit usage. typically bounces back in a month or two with no action on your part.

  • http://www.doctorofcredit.com/ doctorofcredit

    That information is just incorrect. You get the age value of the closed card until it falls off your credit report (under FICO only, VantageScore doesn’t include closed accounts in their age profile).

  • james

    Citi bank cards are well known to close your card (without notice) for inactivity (18 months). About once a year, I bring all my old cards out (especially ones I’ve had for 10 years + that help my aging on FICO scores), and when filing up with gas, or going to Starbucks, etc. use a different one — pay off the balance — just to keep them active.

  • james

    this information is incorrect.

    From MyFico . com
    FICO High Achievers [opened their oldest account 19 years ago, on average.

    I have an old CapitalOne card (20+ years) that I keep, because MyFico account says it strengthens my FICO score. I don’t use it now much, but 2-3 times a year I make purchases (and pay it off) to keep it active. It’s particularly important if you are opening new credit cards to try to gain mileage bonuses. It’s an important balance to have for new card applications (which can drag your score down a bit).

  • james

    this is absolutely true. My FICO is in the low 800s, and on some new credit applications the bank will give me a ridiculous $20,000 limit. When opening new cards with Chase, they often approve it, but require me to shift around limits on various cards — which is fine. But I’ve learned to be more proactive, and call some of my cards and ask them to lower my limits… so that if I ever get an TPG “Amazing Deal Alert” (ha :) ) my limits with a single bank on multiple cards are already under control.

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