Does Closing a Credit Card Hurt Your Credit Score?

If you’re like most of us, you probably have too many credit cards to keep track of and you may have a credit card that you barely use and might be thinking about closing your credit card. That said, regardless of the reason that you want to close your credit card for, you might ask yourself the following question: Will closing a credit card hurt your credit score? We will answer this question in much detail below.

Does Closing a Credit Card Hurt Your Credit Score?

Closing a credit can hurt your credit score for multiple reasons. It can hurt your credit score because it increases your credit utilization and it reduces the overall ages of your accounts. So, although you may believe that closing your credit card is a good idea, you should avoid doing so if you do not want to cause a drop in your credit score.

Credit Utilization

Closing a credit card can hurt your credit score because it may increase your credit utilization. Your credit utilization refers to the amount of your available credit that you’re using. This factor accounts for 30% of your credit score, so an increase in your credit utilization will cause a drop in your credit score.

As a rule of thumb, you should never utilize more than 30% of your available credit. Ideally, you want to keep your credit utilization between 5% and 10%. Here is an example of how closing a credit can increase your credit utilization.

For example, if you have the following credit cards:

  • Card 1 – Credit limit $5,000 and Card Balance $0
  • Card 2 – Credit limit $3,000 and Card Balance $1,000
  • Card 3 – Credit limit $2,000 and Card Balance $1,000

If you look at the following credit cards, you have a total credit limit of $10,000 and you’re currently utilizing $2,000 of the available credit, making your credit utilization 20% of your available credit, which keeps you in the safe zone below 30%.

However, if you close down Card 1 you’re available credit will become $5000 and you’re credit utilization would jump from 20% to 40% ($2,000 from $5,000). This is a significant increase in your credit utilization, which will cause a drop in your credit score.

So, if there isn’t a compelling reason to close your credit card, you should keep it open to avoid a drop in your credit score. You should definitely keep the credit card account open if you plan on making a major purchase, such as a home to ensure that you have the best possible credit score when you apply for a home loan.

Overall Account Age

Closing a credit card can hurt your credit score because it decreases the overall age of your accounts. Your account age accounts for 15% of your credit score. So, if you’re closing an account that you’ve had open for a long period of time, closing such a card can cause a drop in your credit score. The older your account, the bigger the drop will be.

If you have a credit card that you’ve had for a very long period of time, you should avoid closing it, especially if it’s the first credit card that you opened to begin building your credit.

You should explore the option of switching your account to a different credit card. Many card issuers have credit cards that you can upgrade to without losing the credit history you have on your credit card. So, explore this option if you want a better credit with more rewards or a lower APR.

Bottom Line

Regardless of the reason that you have for closing a credit card account, you should consider the consequences of closing your card. Although your credit score may take a small hit when you first close down a credit card, especially one that you’ve had for a very long period of time, your credit score should recover within a short period of time, so long as you continue to make all of your payments in full and on time.

You Should Consider Alternatives To Closing Your Credit Card

If you’re worried that closing down your credit card may hurt your credit score, you should consider the alternatives available to you.

The first and best alternative to closing down your credit card is to ask your card issuer about switching your credit card over to another card that has the options that you want.

For example, at Credit Score Planet, we have had success switching over our Bank of America, American Express, and Citi credit cards to other cards from the same card issuer while retaining the credit history you’ve built behind your old credit card.

If you want to close down your credit because it has a high annual fee, you should consider contacting your card issuer and ask them to lower your annual fee or waive it. Some card issuers will be willing to assist you.

In the event that you want a credit card that offers more rewards, you should also contact your card issuer and ask them about upgrading your current credit card to one that has rewards while keeping your credit card history. This is possible if your current card issuer offers other credit cards that you’re interest in applying for.

If you want to close down your credit card because you find yourself spending way too much money, you should ask your card issuer to place a credit card freeze on your account to prevent you from making additional charges on the card. This is one alternative to closing down your credit card and hurting your credit score.

When Should You Close Down Your Credit Card?

You should close down your credit card if any of the following apply:

  • Your credit card comes with a high annual fee and the rewards that you’re earning are not enough for you to recoup the cost of the fee, and you’ve contacted the card issuer to have the fee waived or reduced and they refused to do so.
  • Your credit card has a very high interest rate and you’ve attempted to contact your card issuer to lower the interest rate and they refused to do so.
  • Your credit card does not offer you the rewards that you want and you want to close your account to apply for an account that offer rewards. Before closing your credit card account, you should attempt to contact your card issuer and ask them about credit cards that you can upgrade to that offer rewards. If your card issuer does not offer such an option, you should close down your credit card.
  • You do not want to accumulate more debt and so you want to close down your credit card. Before closing down your card, explore the option of freezing your credit card prior to closing it down to avoid hurting your credit score.

When Should You Keep Your Credit Card Open?

Just as there are reasons as to why you should close down your credit card, here are some reasons why you should keep your credit card open:

  • The credit card that you want to close if the first card that you ever opened
  • You have had the account for a very long period of time
  • You have a few accounts open
  • Your credit card has flawless payment history and you’ve had it for a significant period of time

What is the Safe Way To Close Your Credit Card?

If you have decided that closing your credit card is the best option for you, here are some steps that you should follow to ensure that you don’t cause a significant drop in your credit score:

  • You should pay off the credit card, leaving a $0 balance prior to closing it
  • You should call your credit card issuer and confirm that the balance has been paid off and ask them to close down your credit card and send you confirmation that the account has been closed in good standing
  • If you’re using your credit card to make automatic payments, make sure that you stop such payments to avoid accidentally leaving an unpaid balance on your credit card
  • If you have any authorized users on your credit card account, you should instruct them to stop using their credit card prior to closing down your account to avoid leaving an unpaid balance
  • After closing the account, you and any authorized users should destroy the credit card either by shredding it or cutting it into small pieces
  • Check your credit report within 30 days to confirm that your account appears as closed and paid as agreed

Does Closing A Credit Card Remove it From Your Credit Report?

Closing a credit card account will not remove it from your credit report. If you made all of the payments in full and on time on your credit card, the credit card will remain on your credit report for 10 years from the date that you closed your account. However, if you missed any payments on your credit card account, your credit card will remain on your credit report from the date that you first became delinquent on making credit card payments. After the 7 or 10 year period has passed, the account will automatically be removed from your credit report.

Credit Score Planet Frequently Asked Questions

1. Is it better to cancel unused credit cards or keep them?

If you have an unused credit that you’ve had for a long period of time and have build a positive payment history behind, you should keep your account open as closing it may cause a small and temporary drop to your credit score.

2. How much does closing a credit card hurt your credit?

Closing a credit card can cause a small drop in your credit score that’s usually a few points.

3. How many credit cards should a person have?

The average person has 3 to 4 credit cards. There is no magic number of credit cards that you must have, but having 3 to 4 credit cards is normal.

4. Should I close my oldest credit card?

You should always avoid closing your oldest credit card because chances are that it has a lengthy payment history and it contributes to an older account age, which helps your credit score. So, keep your old account open and consider alternative to closing down your account if you’re not satisfied with it.