Which credit card should I cancel?
I recently got married, and since then my husband and I purchased our first home and a newer vehicle for our expanding family. We both have good credit scores, but we opened a joint credit card that has good rates and cash back options. I have two previous credit cards that I've had for many years and would like to cancel one, but am not sure which one would be better to cancel to protect my credit score.
The first one I have been a member of since 1999, it has a high credit limit, and also a very high interest rate (19%). The second one I have been a member of since 2007 with a average limit and 12.25% interest rate. Is it true that it "looks good" on a credit score to have had a credit card for a long time? That would be the only reason to keep the first card with the high interest rate. Which credit card should I cancel?
You shouldn’t cancel either credit card to have your credit score not be impacted negatively.
15% of your credit score is based on how long you’ve had credit (hence keeping the one from 1999) and your average length of credit. Each source of credit counts as one for the denominator and the years you’ve had each line of credit get added together to form the numerator. The numerator divided by the denomination gives you your average length of credit.
30% of your score is based on your credit utilization, which is the amount of total credit you have available and the amount that you are using. Less than 30% is best, although the lower the better. This is the case for also keeping the card from 2007.
Since you won’t be carrying these cards with you to make purchases, charge at least one thing to each so they have some activity. For instance, charge something like Netflix and/or another monthly automatic charge to each.
Be disciplined about using a credit card and pay off the balance every month to incur no interest charges.
You shouldn't be buying anything with any of your credit card that you can't pay off completely within a month. If this is the case, you shouldn't worry about what interest rate your credit card has. You should only each have one credit card on one joint credit card.
I suspect you have a mortgage in your house; perhaps car loan(s) too. Ideally, the only debt you should have is your mortgage and you need to make plans to pay your mortgage entirely as soon as possible. If you are not on track to have a financial scenario like that I am describing, you will need to start achieving this type of a scenario. If and when you do, your credit card questions will be moot.
You don't mention if the cards come with an Annual fee. If they don't come with an annual fee you might as well keep them.
Also if you don't carry a balance the interest rate really isn't that big of a deal. Would be more about the benits it provides. Like miles or cash back.
If you are paying an annual fee it sounds like cancelling the one with the higher annual fee would be the easier choice. Since you have newer vehicles and a new home you credit score important but you don't have to fight for every single point.
Best of luck
The best thing you can do for your credit score is to pay your bills on time. Never, never, NEVER carry a balance on a credit card. The interest will eat you alive and you might get into the habit of spending more than you make. It sounds as though you have taken on a lot of new obligations (congratulations!) so it's really important to establish good habits right out of the gate. Make sure you two talk a lot about finances and are on the same page. It's good for your financial health and great for a sound relationship.
So use the cards that give you cash back on purchases. As long as a card doesn't have an annual fee I don't suppose there's any real reason to cancel it; just don't use it.
And was I forceful enough about paying in full every month? Seriously -- nothing else is anywhere near as important.
Yes, your oldest credit account is one of the largest factors in calculating your credit score.
If you do not pay an annual fee on your old credit cards, DO NOT cancel either of them. Your credit score likes to see those old accounts, AND also the more credit you have available to you the better (assuming you are not carrying a balance).
So, scenario 1: No annual fees, then keep them both open. It's not costing you anything to have them and they are helping your credit score, so why cancel? Just CUT THEM UP!
Scenario 2: You do have annual fees. Here I understand that it really makes no sense to be paying to maintain a card you do not use. So, request a credit report from one of the reporting agencies (Equifax, Experian, TransUnion). There you will be able to see all the accounts affecting your credit score. Maybe you have an older account than the 1997 card. If so, canceling both is acceptable. If the 1997 card is your oldest account by a long shot, then there is a trade-off between the credit score effect and that annual fee you must keep paying. So the next logical questions are, do you anticipate taking any big loans in the near future (house, car, student loan refinance etc.)? How high is the annual fee? All necessary information to have before deciding to cancel. Reducing your oldest account by 20 years will have a major effect. Reducing it by 1-5years not so major.
Sorry, there is not a perfect formula. Also, the credit companys don't really care about the interest rates on the cards. But I should say that 19% is very high and you shouldn't use it any scenario if you can help it.