Yes, closing a credit card can hurt your credit score in several ways, like increasing your credit utilization ratio, shortening the average age of your accounts, and negatively impacting your credit mix.
Closing a credit card influences the math behind several scoring factors that determine your credit score, which can either subtly or significantly shift your score depending on your overall credit profile.
This in-depth guide will explore the full impact that closing a credit card can have on your credit score.
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How closing a credit card affects your credit score
Closing a credit card can impact your credit score in several ways. Here’s what you need to know.
Increases your credit utilization ratio
Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. When you close a credit card, your total available credit decreases, which could increase your utilization ratio. A higher ratio may negatively impact your score.
For example, let’s say you have two credit cards that both have a limit of $5,000, for a total of $10,000 in available credit. If you carry a $2,000 balance, then your utilization ratio is 20% ($2,000 / $10,000 = 20%). You’ve used 20% of your total available credit.
If you close one of your cards and keep the same $2,000 balance on the other card, your total available credit drops to $5,000, pushing your utilization to 40% ($2,000 / $5,000 = 40%). This higher ratio can potentially cause your score to decline.
Many lenders prefer to see overall utilization of 30%, with even lower (often under 10%) generally being better for scoring purposes. Closing a card reduces the “headroom” you have, so regular spending that was previously harmless could nudge your utilization into a higher range month-to-month.
Shortens your credit history length
Your credit score also factors in the length of your credit history. Closing an old credit card can shorten your average account age, which may lower your score. It’s generally beneficial to keep older accounts open, even if they are not used frequently.
Two related factors are at play:
- The age of your oldest account
- The average age of all your accounts
Closing a long-standing card won’t erase its history right away, as closed accounts in good standing can remain on your credit reports for years, continuing to contribute positively while they’re listed.
However, once an old closed account eventually drops off your report, your average age could decline, potentially lowering your score at that future point.
Can negatively impact your credit mix
If you’re planning to apply for a major loan or mortgage, having fewer available credit accounts could be a factor in your application. Lenders typically prefer to see a solid credit history that indicates responsible credit management.
While closing a card doesn’t generate a new hard inquiry, it can indirectly influence underwriting decisions by changing your utilization and the stability of your profile. Some lenders also consider your overall credit mix and your demonstrated ability to manage multiple accounts over time.
If you plan to replace a closed card with a different one, keep in mind that applying for new credit can add a hard inquiry and reduce your average age of accounts, both of which may temporarily weigh on your score.
Could impact your payment history
On-time payments contribute positively to your credit score. Closing a card doesn’t erase your payment history, but if closing a card leads to missed payments on other accounts, it could hurt your score.
Payment history is typically the most significant factor in your credit score. Although closing an account in good standing preserves its positive record for a time, you still must manage any remaining balance on the closed account and ensure automatic payments or recurring charges are moved elsewhere.
A common pitfall is closing a card and forgetting about a recurring subscription that later triggers a missed payment or late fee. Or, closing a card without fully paying off the balance, which results in late payments on your card.
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Other potential consequences of closing a credit card
Beyond its impact on your credit score, closing a card can have other effects on your finances:
- Reduces your overall credit limit: This can affect your ability to handle large expenses in the future.
- Can create a perception of risk for lenders: Lenders might see fewer accounts as a sign of instability.
- Might increase the impact of existing hard inquiries: If you’ve recently applied for credit, closing an account might amplify the negative effects.
- Can affect your payment history if not managed properly: Missing a final payment or neglecting to check your balance could harm your credit score.
When you might consider closing a credit card
There are several scenarios where you might want to consider closing a credit card.
| When to close a credit card | When to keep a credit card open |
| High fees or interest rates: If the card costs more than its benefits, closing might be the right choice. | Building credit history: If it’s one of your oldest accounts, keeping it open helps maintain your credit history length. |
| Consistent temptation to overspend: If the card leads to poor financial habits, it could be better to cancel. | Maintaining a low credit utilization ratio: More available credit helps keep your utilization ratio low. |
| Account mismanagement: If it’s hard to keep track of multiple cards, simplifying your finances could help. | Retaining benefits and rewards: If the card offers valuable perks, keeping it might make sense. |
| Change in financial circumstances: If you’re downsizing your financial commitments, closing a card might fit your plan. | Emergency backup: Having an additional card can be helpful in unexpected situations. |
How to close a credit card safely
Knowing how to close a credit card properly is essential to avoiding unnecessary impact on your credit or financial complications. Whether you’re dealing with a card you no longer use or one with high fees, following these steps is the best way to cancel a credit card.
- Pay off the balance: Always pay off your card in full. If you’re closing a credit card with a balance, interest will continue to accrue until it’s paid.
- Redeem any rewards: Use up any points or cashback you’ve accumulated before canceling.
- Notify the issuer: Cancel your card online, through the app, or by calling your credit card company to request a closure. It’s a good idea to confirm that there is no remaining balance or fees.
- Monitor your credit report: After closure, check your credit report to ensure the account is marked as “closed by customer.”
- Shred the card: Destroy the card to prevent unauthorized use.
Alternatives to closing a credit card
Have a card that you’re considering closing, but don’t want to risk the impact on your credit score? Here are some other options to consider.
Keep the card open, but don’t use it
Even if you don’t want to use the card regularly, you can still keep it open for the sake of your credit score.
To prevent inactivity closures by the issuer, put a small, predictable charge on the card (like a streaming subscription) and set up automatic payments in full. This light activity signals responsible use without adding complexity to your budget.
Store the card securely, enable account alerts, and review statements monthly. These habits minimize fraud risk and ensure the account continues to benefit your profile with minimal effort.
Downgrade to a cheaper card or request a lower credit limit
If your card is too expensive, consider downgrading to a more basic version of the card. Some issuers offer no-fee versions of premium cards.
If you’re worried about overspending, you can also request a lower credit limit while keeping the account active. This approach can support your budgeting habits without sacrificing the account’s age.
Keep in mind that lowering a limit can increase your utilization percentage if you carry balances elsewhere, so consider the impact before requesting a change. If possible, pay down balances to maintain a comfortable utilization level across all cards.
Transfer balances
If you’re concerned about debt, consider transferring your card balance to a card with a lower interest rate.
Balance transfers can provide breathing room through a promotional 0% annual percentage rate (APR). However, it’s advisable to weigh factors like transfer fees, the promotional period length, and the go-to APR after the promotion ends. Make a payoff plan that clears the balance before the promotional window closes.
If you do a balance transfer to replace a high-fee card, avoid closing the old account until the transfer posts, and you’ve verified a $0 balance. You can then reassess whether to keep the old card open for your utilization and history, or proceed with closure if the fees and benefits no longer align with your needs.
Explore balance transfer cards with a lower interest rate or no transfer fees.
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FAQs
Does closing a credit card affect my credit score?
Yes, closing a credit card can negatively impact your credit score by increasing your credit utilization ratio, potentially shortening your credit history, and reducing your credit mix.
What should I do before closing a credit card?
Assess the impact that losing the card might have on your credit utilization, history, and mix. Before you cancel the card, make a quick checklist: Pay the balance to $0, move or cancel any recurring subscriptions, redeem rewards, and download statements you may need for records or taxes.
Are there benefits to keeping unused credit cards?
Yes, keeping unused credit cards can contribute positively to your credit score by maintaining your total available credit and supporting a longer credit history.
Can closing a credit card improve my credit score?
It’s unlikely that closing a card will improve your credit score. Closing a card often reduces your credit score in the short term.
How long does a closed credit card stay on your credit report?
Closed accounts typically remain on your credit report for 7 to 10 years.
