Congratulations on taking advantage of a balance transfer offer to cut the amount you're paying in annual service charges. Whether or not you should close out that old credit card depends on a few factors:

  • Whether your old card carries an annual fee.
  • Whether you're planning any major purchases in the next few years.
  • Whether you're strong enough to resist the urge to go back into debt on that old card.

Most people start asking this kind of question when they don't really need an extra credit card, but they're worried about the impact on their credit scores. While it's true that some credit scoring models use the age of your oldest active account to determine part of your score, the impact of closing your account might not be as severe as you think.

Some scoring models now factor in the start date tied to your oldest credit card or personal loan, regardless of whether it's still active. Other scoring algorithms award extra points for demonstrating customer loyalty by keeping your oldest account active after years of use. In general, your number of on-time payments plays a bigger role in setting your score than whether it's still open.

If you're planning to finance a house or a car in the next two years, another sudden shift in your credit score might knock you out of contention for some of the market's best rates on secured loans and insurance policies. On the other hand, a credit card for poor credit with a high annual fee could cost just as much out of pocket as you might save by boosting your score.

Likewise, if you're an impulsive shopper and the lure of an open line of credit poses a threat to your financial stability, cancel the card and throw as much extra cash at your remaining debt as you can afford. Knocking down that balance and improving your credit utilization can reverse any negative impact of closing your unused account. Should you decide to keep that account open, use it just once a month when purchasing a pack of gum or another small item. Even a small, routine purchase can prevent your bank from closing your account due to inactivity.

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