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I have recently paid off my credit cards and would like to close most of them. I have six cards total, three of which are no-brainers to close. The newest card (less then one month old) has quite a few nice perks through my credit union and will be staying open.

That leaves two cards to choose between:

One card, which I currently pay my utilities with and pay off every month, has a 2% cash back bonus, no annual fees and has been open for eight months.

The other card I do not use, has been open for five years and has roughly $75 in annual fees.

I read here that the age of accounts makes up about 15% of your score.

What is the best course of action in this scenario to increase my credit score? I'm currently around 640, but have been steadily increasing for a couple of years now if that makes a difference.

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    Call the banks issuing the cards that carry annual fees to inquire if you can convert the card to a product with no annual fee.
    – quid
    Apr 26, 2016 at 20:51
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    When do you next expect your credit score to matter? How much do you expect a small change in the score to matter? Realistically, short-term changes in score are usually irrelevant, and are a bad reason for making decisions. Don't let the tail wag the dog.
    – keshlam
    Apr 27, 2016 at 13:13
  • @keshlam My goal is to buy a house about 14 months from now, and have the best credit score I can have by then.
    – rogerdeuce
    Apr 27, 2016 at 13:17
  • @keshlam that 5 year old card is likely one of his oldest accounts. Closing your oldest account will tank your score. Ordinarily, that 75 bucks is instant close (never open) in my book. I'd try quid's suggestion. Ask the CCC to convert it to no annual fee. If not, go into your calendar, put a reminder for 15 months to close or reschedule to close the account (after house closing).
    – Xalorous
    Aug 17, 2016 at 14:49
  • Closing a card, even your oldest card, is not sudden death. I've done it often enough when moving to new cards. My credit score never seems to have suffered significantly. Unless your score is marginal and you are about to apply for a major loan, this is the wrong thing to worry about. Maybe not even then.
    – keshlam
    Aug 18, 2016 at 3:54

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If you answer with your gut, then it's probably not worth paying money (year after year) for the sole purpose of slightly increasing your credit score.

That being said, you might be able to figure out the answer mathematically. If canceling the card drops your score 20 points and the difference between 620 and 640 affects whether you can get a car loan or a mortgage, then it's probably worth $75 to keep it. Similarly if the higher score gets you a slightly better interest rate on your loan, then you'll likely save more than $75/year due to the better rate. You could also wait to cancel the card until after you get the loan you are trying to get.

Ultimately, @quid's comment should be your first course of action. If your bank well let you transfer the card to a fee-less card and keep the age on your credit report, that's the best option.

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Since nobody put this in an answer, I will.

In the case where you will be making a major purchase where credit history will have an impact, keeping the card open until after that purchase may be worth it for you. In a comment you mentioned buying a house in just over a year. I recommend you cancel the account after closing.

In this day and age, it's not worth it to use fee based credit cards, so don't open any new ones. Fee based cards have lower rates, but we have learned that carrying balances on rotating credit is 'a very bad thing' due to the ridiculous interest rates.

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The typical credit score model considers the age of the oldest account but also the average age of open accounts. It also considers the total number of accounts, the utilization ratio of those accounts, and the total credit available to you. If you close multiple accounts, you may see a lowering of many or all of these factors if you do not open other accounts (presumably under more favorable terms).

That said, carefully consider the costs of keeping accounts open. If an account charges an annual fee, then it may not be worth it to you to keep paying that fee, especially if the limit on that card is low or if the account is relatively recent. However, if the account has a long history, that in itself is not a reason to keep it around, because depending on the number of other open accounts and their ages, closing the oldest account may not have a significant impact on your score.

Also consider that less weight is put on the age of accounts compared to the highest impact criteria, such as history of delinquent payments and utilization ratio, both of which are much more important. This is why closing multiple lines of credit can put you at risk of having a higher utilization ratio unless you always pay off your balances promptly.

My advice is to close accounts with high fees; consolidate your debt and limit purchases to the card with the best terms and keep the total utilization ratio low; and if you must close other accounts, see if you qualify for a credit limit increase on the accounts you wish to keep.

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(I live in the UK, where we have a 1st world banking system, I don't know how primitive the USA banding system is on these issues, therefore my answer my be wrong for the USA.)

Credit Scares are not used to decide loan etc. Each bank has systems that take into account all the information on your credit report. Different bank combine the information on the credit report in different ways. The credit scare is just a nice way to indicate how good your credit report is.

Therefore I would close the card with the fee.

Then do as much of your spending as possible on your fee free cards and pay them off every month. You get the best credit rating by having a long history of paying what you owe on time, every time.

Banks don’t like it if someone takes out a lot of credit at the same time; therefore do not open more then 1 or 2 new credit cards in a year. Also don’t have many credit cards that you are not using.

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    Is that first-paragraph burn really necessary? is it adding anything to the discussion? Have a downvote from me that says I think not.
    – Mindwin Remember Monica
    Apr 27, 2016 at 17:43
  • I agree with @Mindwin. Credit score (You Brits are normally the grammar police, after all, being custodians of the language, after all.) IS used in the US for all manner of credit decisions. Yes, you can request a manual review from the loan officer at a bank here to have an in depth examination of your credit history in place of the credit score. But the fact remains that consumer credit decisions in the US are made based on credit score. For better or worse, agree in principle or not, that is reality. So, you got my downvote too. Of course I'm new here so my vote doesn't register.
    – Xalorous
    Aug 17, 2016 at 14:54
  • @Xalorous, in the UK all banks use "credit score" but they each calculate them in different ways, they have no relationship to what any 3rd party says your "credit score" is.
    – Ian
    Aug 17, 2016 at 20:08

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