💳 Debunking the Credit Card Closure Myth

Have you heard the advice "never close old credit cards"? This guidance is only partially correct. Many people misunderstand the relationship between closing credit cards and credit scores. Today, we'll clarify exactly what happens when you close a credit card and when it's safe to do so.

🤔 The Common Misconception: "Closing Cards Erases Credit History"

Many believe that closing a credit card shortens your length of credit history (average account age), causing your credit score to drop. This is only partially true.

📊 The Importance of Credit History Length

Length of credit history accounts for 15% of your credit score. It includes two components:

• Age of your oldest account
• Average age of all accounts

However, the real impact of closing cards lies elsewhere.

🎯 The Real Issue: Credit Utilization

When you close a credit card, the biggest impact is on your credit utilization, which accounts for a much more significant 30% of your credit score.

💡 Understanding Through a Real Example

Consider this scenario:

Before Closing

• Credit Card A: $5,000 limit
• Credit Card B: $5,000 limit
• Total limit: $10,000
• Camera lens purchase: $2,000
• Credit utilization: $2,000 / $10,000 = 20% ✅

At this level, you're well below 30%, so there's no negative impact on your credit score.

After Closing Credit Card B

• Credit Card A: $5,000 limit
• Total limit: $5,000
• Camera lens purchase: $2,000
• Credit utilization: $2,000 / $5,000 = 40% ❌

Your utilization suddenly jumps to 40%, which begins to negatively impact your credit score.

🔑 Core Principle: Total Credit Limit Matters

The impact of closing a card on your credit score depends on your remaining total credit limit after closure.

✅ Safe to Close When...

Let's say you have 4 credit cards, each with a $5,000 limit:

• Total limit: $20,000
• Average spending: $2,000
• Current utilization: 10%

If you close 1 card:

• New total limit: $15,000
• Spending: $2,000
• New utilization: 13.3%

You're still well below 30%, so closing the card won't significantly impact your score.

❌ Risky to Close When...

Conversely, if you only have 2 credit cards, each with a $5,000 limit:

• Total limit: $10,000
• Average spending: $2,500
• Current utilization: 25%

If you close 1 card:

• New total limit: $5,000
• Spending: $2,500
• New utilization: 50%

This exceeds 30% significantly and could seriously damage your credit score.

📋 Credit Card Closure Guide

Pre-Closure Checklist

Before closing a card, answer these questions:

1. Is this your first credit card?

   • Yes: Keep it if possible
   • No: Continue evaluation

2. What will your total limit be after closure?

   • Calculate: (Total limit of remaining cards)

3. What's your average monthly spending?

   • Calculate average over recent 3 months

4. What will your utilization be after closure?

   • Calculate: (Average monthly spending / Post-closure total limit) × 100
   • Below 30%: Safe
   • Above 30%: Reconsider

🛡️ Safe Closure Strategies

If You Want to Close a Card with Annual Fees

1. Secure Replacement Card First

   • Apply for a new card before closing
   • Choose one with similar or higher credit limit

2. Increase Limits on Existing Cards

   • Request limit increases on other cards to maintain total credit

3. Adjust Spending Patterns

   • Reduce monthly spending to lower utilization

Cards Without Annual Fees?

If there's no annual fee, there's no need to close:

• Store it in a drawer
• Use it once every 6 months for a small purchase
• Preserve both credit limit and credit history

💪 Real-World Example: My Card Management Journey

I've opened 65-70 credit cards over the years and closed 50+. I currently maintain only 8-9 cards, yet my credit score consistently stays between 800-820.

🎯 Keys to Success

1. Maintained Sufficient Total Limit

   • Always kept total limit at 3-4x my monthly spending

2. Gradual Closure

   • Never closed multiple cards at once
   • Pattern: Close 1 card → Wait 3 months → Close next card

3. Preserved First Card

   • Still hold my first card from 15 years ago

4. Monitored Utilization

   • Checked utilization monthly and kept it below 20%

📊 Card Closure Simulation Tool

If you're considering closure, calculate the following:

Current Situation:
- Number of cards: ___
- Total credit limit: $___
- Average monthly spending: $___
- Current utilization: ___% 

Post-Closure Scenario:
- Limit of card to close: $___
- New total limit: $___
- Expected utilization: ___% 

Assessment:
- Below 30%: Safe to close
- 30-40%: Caution needed, consider alternatives
- Above 40%: Reconsider closure or find alternative solution

🌟 Final Advice

Closing credit cards requires careful consideration, but you don't need to fear it. The keys are:

1. Especially protect your first card
2. Focus on total limit and utilization
3. Calculate before closing
4. Close gradually
5. Keep no-annual-fee cards

Credit management is an art of balance. Cleaning up unnecessary cards is fine, but always approach it strategically with your credit limit and utilization in mind.