Remember the excitement that surrounded your first credit card? You probably applied for a credit card when you went to college, or maybe your parents offered you some advice. Either way, you’ve had that card since your teens or early 20s and it’s probably not the best card in your wallet. It can have a high interest rate, no rewards, or a high annual fee.

Once you start building good credit, you were probably offered better credit cards. Your interest rates are lower, you probably have no annual fee or a low fee, and you probably have access to airline miles or cash-back rewards. So why keep the card that no longer works for you?

How will closing my accounts affect my credit?

The important thing to remember is that when you make the decision to close a credit card account, you are lowering your credit utilization rate. Remember that credit utilization represents 30 percent of your total score calculation. You will need to reduce your spending habits when you close a credit card account or you will likely exceed the recommended utilization rate of 30 percent, causing your credit score to plummet.

The average age of your credit accounts is another important factor in your credit score. This is twofold. If you’re new to credit, it’s best to keep old cards open because they stay on your credit for 10 years. That card, though rarely used, actually helps your credit, especially if you have a good payment history. Closing it could hurt your credit far more than someone who has been building credit for more than a decade.

So what can I do?

If you have a high interest rate or a high annual fee, try negotiating with your credit card provider. Sometimes if you tell them that you are considering canceling the card due to high fees, etc., they may work with you. It costs them much more money to acquire a new customer than it would cost them to waive their annual fee or lower their interest rate.

Sometimes you have to close a card. If it’s costing you money because the credit card company won’t negotiate a waiver or lower annual fee, there’s no point in keeping it. Your credit may suffer, but it will recover. However, you cannot recover funds lost due to annual fees for a card you don’t use.

Closing a credit account should not be taken lightly. Be sure to consider the factors listed above before closing your accounts.

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