Impact of Closing a First Credit Card on Your Credit Score

When considering the impact of closing your first credit card on your credit score, the answer is potentially. However, the extent of the impact significantly depends on several factors, including the age of the card and the number of other credit accounts you possess. Here, we delve into the details, examining how your credit score is calculated, why closing a card might affect it, and the factors that determine the degree of impact.

How Your Credit Score is Calculated

Your credit score is a complex metric that influences various aspects of your financial life. The FICO scoring model, widely used by financial institutions, calculates credit scores based on five key factors:

Loan repayment history (35%) - This is one of the most significant components of your credit score. Late payments can significantly lower your score. Amounts owed (30%) - This factor considers the ratio of your outstanding debt to your total credit limits, known as credit utilization. Length of credit history (15%) - The age of your oldest and newest accounts, as well as the average age of all your accounts, are crucial. New credit accounts (10%) - Opening new credit lines can slightly lower your score temporarily. Types of credit used (10%) - A mix of revolving and installment accounts is beneficial for your score.

The Specific Impact of Closing a First Credit Card

The specific impact of closing your first credit card on your credit score largely depends on the following factors:

1. Age of the Card
If this is your oldest credit card, its closure may have a more significant impact. However, if you have other accounts with the same age, the impact will be less pronounced.

2. Age of Other Accounts
If your oldest account is a long-standing credit card and the rest of your accounts are relatively new, closing the first card will likely decrease your score. On the contrary, if you have other accounts with similar ages, the impact may be minimal.

FICO Score Components

FICO Scores consider multiple aspects of your credit history, including:

Credit Utilization (UTILn) - This measures the percentage of available credit in use. Closing a card may increase your overall utilization, potentially lowering your score. Credit Length (AAoA) - FICO examines both your oldest and newest open accounts, as well as the average age of all your accounts. Even closed accounts factor into this metric, remaining on your credit report for up to 10 years. Credit Mix (n) - Lenders appreciate a variety of credit types, such as major credit cards and store credit accounts. Closing one type of card might slightly affect your score, but the overall impact is minor.

Quantifying the Impact

The extent to which closing a first credit card affects your credit score can vary greatly. Multiple factors come into play, including the number of other cards with long credit histories, the credit limits, and the impact on your overall credit utilization.

1. Impact on Utilization
If closing an old card increases your credit utilization, your score may decrease. However, if you have other cards with high credit limits, the impact may be minimal. Consider requesting increased credit limits on your existing cards to maintain a lower utilization rate.

2. Impact on Age of Accounts
Your credit history length plays a vital role in your score. The longer the age of your accounts, the better. Closing a long-standing card may temporarily lower your credit score but generally won't have a significant long-term impact once other newer accounts age.

3. Impact on Credit Mix
Having a diverse credit mix is beneficial. If your long-standing card is the only store card or major credit card you have, closing it might slightly reduce your score but not drastically.

Conclusion

The impact of closing a first credit card on your credit score is a combination of several factors. While it can potentially decrease your score, the degree of impact varies. Maintaining a good credit score requires a strategic approach to managing your credit accounts. Regularly monitoring your credit utilization, understanding your credit mix, and ensuring a healthy mix of long-standing accounts will help mitigate any potential negative effects.

Key Takeaways:

Older accounts contribute significantly to your credit score. The closure of long-standing accounts can temporarily lower your score but generally won't have a lasting impact. A diverse credit mix is beneficial for your credit score.

If you are considering closing a first credit card, assess the impact by considering these factors and potentially taking action to maintain a good credit score, such as requesting increased credit limits or maintaining a mix of credit types.