Is it bad to cancel your first credit card?

Should You Cancel Your First Credit Card? The Surprising Answer is Probably No.

Your first credit card: a rite of passage, a symbol of financial independence, and potentially, a crucial building block of your creditworthiness. But what happens when you’re tempted to cancel it? Many assume it’s a simple matter of cutting up the plastic and moving on to shinier, newer options. However, canceling your first credit card can have a surprisingly negative impact on your financial health, despite feeling like a sensible move.

The key lies in understanding how credit bureaus assess your creditworthiness. Lenders don’t just look at your payment history; they also consider the length of your credit history. This is often represented by your “average account age,” a crucial factor in your credit score calculation. Closing your oldest credit card, particularly your first one, significantly reduces this average age, resulting in a potential drop in your credit score. This is true even if you’ve diligently paid your bills on time.

Think of your average account age like the average age of a classroom of students. If you remove the oldest student, the average age of the class instantly decreases. Similarly, removing your oldest credit account lowers your average account age, sending a signal to lenders that your credit history is less established than it actually is. This can negatively affect your ability to secure loans, mortgages, or even obtain favorable interest rates on future credit cards.

So, what’s the alternative? Simply put: don’t cancel it. Instead of closing the account, keep it open and inactive. This preserves your valuable credit history without the risk of accumulating debt. If you’re concerned about the temptation to use it, physically cut up the card and store it in a safe place. This removes the immediate accessibility while leaving your credit history intact. You’ll maintain the positive impact of a long-standing account on your credit score.

In summary, while the allure of closing an old credit card might be strong, the long-term consequences on your credit score can be detrimental. By keeping your first credit card open, even if unused, you safeguard your credit history and pave the way for a healthier financial future. It’s a small act with potentially significant positive repercussions. Consider this: a slightly lower credit score can translate to higher interest rates over the long term, costing you far more than the annual fee (if any) of an inactive card. Think strategically, not just emotionally, when managing your credit.