So many instances, when individuals get motivated to “do one thing” about their bank cards, the very first thing they do is shut all of the playing cards they haven’t utilized in a very long time.

Sounds logical: Let’s clear out the previous cobwebs in our pockets!

In actuality, it is a dangerous concept: 15% of your credit score rating displays the size of your credit score historical past, so should you wipe out previous playing cards, you’re erasing that historical past. This is without doubt one of the fundamental bank card guidelines.

Plus, you’re additionally decreasing your “credit score utilization charge,” which principally means (how a lot you owe) / (whole credit score out there).

For nerdy individuals (aka half my readers), right here’s the mathematics of your credit score utilization rating — plus a little-known caveat:

“For those who shut an account however repay sufficient debt to maintain your credit score utilization rating the identical,” says Craig Watts of FICO, “your rating received’t be affected.” (Most individuals don’t know this.)

For instance, should you carry $1,000 debt throughout two bank cards with $2,500 credit score limits every, your credit score utilization charge is 20% ($1,000 debt / $5,000 whole credit score out there).

For those who shut one of many playing cards, abruptly your credit score utilization charge jumps to 40% ($1,000 / $2,500). However should you paid off $500 in debt, your utilization charge could be 20% ($500 / $2,500) and your rating wouldn’t change.

A decrease credit score utilization charge is most popular as a result of lenders don’t need you usually spending all the cash you might have out there by means of credit score — it’s too seemingly that you just’ll default and never pay them something.

NOTE: For those who’re making use of for a significant mortgage — for a automotive, house, or schooling — don’t shut any accounts inside six months of submitting the mortgage software. You need as a lot credit score as doable if you apply.

Nevertheless, if you understand that an open account will entice you to spend, and also you need to shut your bank card to forestall that, you need to do it.

Chances are you’ll take a slight hit in your credit score rating, however over time, it would get better— and that’s higher than overspending.

Backside line? Even should you don’t use a card, hold it open. Put a small cost on it — say, $5/month — and automate it every month. This fashion, you guarantee your card is energetic and maintains your credit score historical past.