A reader recently asked: Will it hurt my credit score if I throw away old credit cards that I no longer use?
To answer this question, let’s look at what goes into your credit score. According to CreditCards.com, there are 5 factors that go into calculating your FICO score:
1. Payment History – 35%
Have a long history of making payments on time.
2. How much you owe – 30%
Keep your credit card balances below 20% of your credit limits.
3. Length of Credit History – 15%
Keep credit cards and loan accounts open for a long time. But, don’t just sit on them. Give them some exercise…at least occasionally.
4. New Credit – 10%
Lot’s of new credit accounts opened recently is a red flag.
5. Good Credit Mix – 10%
A variety of different types of credit is key. A mix of credit cards and loans.
Old credit cards that you don’t use any more aren’t really helping your score. If you still use them occasionally, you might keep them around to give you a little boost with #3 and #5. But otherwise, go ahead and cancel those ancient, abandoned credit cards, send them through the shredder, and feel good that you’ve decluttered your life just a little bit more. Your credit score should be just fine.
Looking at what all goes into calculating your credit score, keeping that number lofty certainly seems like a delicate operation. You might start wondering: Do I really need to worry about maintaining a good credit score?
Sadly, in today’s world, the answer is yes. Lenders, credit card companies, insurance companies, utilities, employers, landlords, and the US government all may rate you based on your credit score. So, does this mean you have to run out and sign up for a couple car loans and stuff your pockets with as many credit card offers as you can find? Nope. Keeping a high credit score doesn’t mean you have to load up on debt. In fact, you really don’t need to go into debt at all. Mrs. Pennypacker and I have made a conscious decision to no longer buy things with debt. We plan to just keep a couple of credit cards going and pay those balances off every month. This will keep our payment history good, the amount we owe will stay low, and our credit history will only get longer. We may lose a few points in the credit variety category, but that’s only a small component of the overall score.