How does closing a credit card impact your credit score?
First off, it’s important to note that there are several factors that go into creating your credit score.
Your payment history is the main factor used for calculating your score, but if you were to close a credit card with a $0 balance your payment history would not be impacted at all. However, other determining credit factors, like your credit utilization, would likely take a hit, and this is where closing a card can get complicated.
Let’s take a closer look.
Credit utilization ratio
The second most important factor that influences your FICO score is the amount of money you owe in relation to your credit limits or your credit utilization rate. This factor makes up 30% of your FICO score, whereas payment history makes up 35% of your score.
When you close a credit card account, you are effectively lowering the amount of total available credit you have. If you also have credit card balances you carry from one month to the next, this means you are increasing your utilization ratio overnight.
This is based on the fact that both per-card and aggregate credit utilization ratios are considered. In other words, your credit utilization is calculated on each individual card you have, but your total credit utilization ratio matters just as much.
As an example, let’s say you have three credit cards with the following balances, available credit, and limits:
| |
Current Balance |
Credit Limit |
Credit Utilization Ratio |
| Credit Card #1: |
$3,000 |
$5,000 |
60% |
| Credit Card #2: |
$2,000 |
$5,000 |
40% |
| Credit Card #3: |
$0 |
$5,000 |
$0 |
| Totals: |
$5,000 |
$15,000 |
Average Utilization Ratio of 33% |
Now let’s imagine you close credit card #3 with the credit card issuer since it has a $0 balance.
The chart below shows how your balance-to-limit ratio could increase overnight, even though you didn’t take on any new debt or take a hit based on non-payment.
| |
Current Balance |
Credit Limit |
Credit Utilization Ratio |
| Credit Card #1: |
$3,000 |
$5,000 |
60% |
| Credit Card #2: |
$2,000 |
$5,000 |
40% |
| Totals: |
$5,000 |
$10,000 |
Average Utilization Ratio of 50% |
By removing one credit card in our example, the average credit utilization ratio increased and this can cause your credit score to decrease.
Length of credit history
Another factor that comes into play when you cancel cards with unused credit is the length of your credit history. Generally speaking, this factor makes up 15% of your FICO score, and longer credit histories score better in this category.
When you close a credit line you’re not using, this can lower the average length of your credit history that’s listed on your credit report.
Credit mix
Another factor that could be impacted is your credit mix. This factor makes up 10% of your FICO score, and it is determined based on the different types of credit you have.
By and large, having several types of credit is better than just one. For example, you’ll score better in this category if you have a solid mix of installment loans, credit cards, and lines of credit open.
If you close one unused credit card and it’s your only one, you could see your score drop as a result.
Will closing a credit card damage my credit history?
Your credit score is a three-digit manifestation of your credit health that falls between 300 and 850 with FICO and VantageScore models. Meanwhile, your credit history is a listing of all your credit movements in the past, which is recorded by the credit bureaus — Experian, Equifax, and TransUnion.
With that in mind, you should know that your credit history will not be damaged by closing a card. As long as you used the account responsibly and made each payment on time and avoid charge-offs while the account was open, closing an account won’t look bad on your credit history at all. This is true even if your score drops.
Reasons to cancel a credit card
Even if your credit score might take a hit in the process, there are several scenarios where it can make sense to close an account anyway.
Here are a few:
Divorce or separation from a partner
If you have a shared credit card account with a spouse or partner and you’re going your separate ways, closing the account can make sense. This is true for joint credit card accounts, which are relatively rare but can also apply to cards where the spouse or partner is an authorized user.
High annual fee
If you have a credit card with a high annual fee (i.e. a Chase credit card that earns travel rewards), you may want to close the account if you rarely use it. Doing so can help you avoid paying for perks and benefits you never get the chance to use.
Spending issues
If you have spending issues and credit cards seem to exacerbate the problem, closing an account can make sense. After all, not having a credit card means only spending what you can afford at the moment, whereas credit cards make it easy to charge purchases and worry about payment later.
High interest rates
If you have a credit card with a sky-high interest rate, closing your account can be tempting. This is especially true if you have the creditworthiness and income to qualify for a card with better interest rates and terms.
Preference to upgrade a card
Maybe you want a credit card with better perks and potential for reward, or perhaps you’re in need of a balance transfer credit card. In either case, canceling an old account and applying for a new cash-back credit card, co-branded rewards card, or 0% APR credit card can make a lot of sense. To see which top cards you may qualify for, the CardMatch tool (try it out below) can help match you with your perfect card and won’t impact your credit score!
Reasons to keep a credit card
There are also plenty of reasons to keep an old credit account open — even if you don’t use it on a regular basis.
Here are some of those reasons:
Account Longevity
As we mentioned already, account longevity is considered when determining your credit score. Ultimately, keeping old accounts open can help your score by increasing the average age of your credit history, whereas closing them can hurt it.
You have few other accounts open
If you have a few other credit accounts open and you don’t want to impact your score in a negative way, keeping a credit account open can help you maintain a good credit mix.
Credit line for emergencies
Having available credit for emergencies can also be helpful, even if you wind up not having to use it. After all, this would give you access to easy funding if you face sudden medical bills or unexpected auto repair bills.
How to cancel a credit card without damaging your credit score
While there’s no guarantee closing a credit card won’t damage your score, there are steps you can take to minimize the impact and terminate your account the right way. Below, we list our tips for closing your card and protecting your credit score.
Top tips for closing a credit card without hurting your credit score:
Alternatives to canceling a credit card
If you’re on the fence about canceling your card, you should know that some alternatives exist. In many cases, these alternate options can help you accomplish something similar to closing your credit account without actually doing so.
The chart below shows some alternatives to closing an account that may work best in different situations.
| Reason to cancel card |
Alternatives to consider |
| You have a problem with overspending. |
Consider leaving your card at home and in a safe place. For example, put your credit card in a safe or a sock drawer for safekeeping. If you have a problem with overspending online, take the time to remove your payment details from each of your accounts (e.g. removing your credit card number from your Amazon account). |
| You’re getting a divorce. |
If you’re getting divorced or separated and your soon-to-be ex is an authorized user on your credit card, you can ask your card issuer to shut down the authorized user card without closing your own account down. |
| The card’s annual fee is too high. |
Call your lender to inquire about downgrading your card to a no-annual-fee version. |
| You want a credit card with better perks or rewards. |
Keep your account open if it doesn’t have an annual fee. From there, you can explore new credit card options and apply for the one you want. |
| The card’s APR is really high. |
Ask your lender to reduce your credit card’s interest rate. Whether they agree to do this or not, you won’t pay any interest on your account if you never carry a balance. |
| You rarely use your card. |
If you rarely use your card, that’s perfectly okay. Stick it somewhere safe so it will be there if you need it. |
The bottom line
Many everyday financial decisions can impact your credit score, and the choice to close a credit card account is just one of them. That said, you should think long and hard about shutting down an account before you do.
While closing a credit card with the issuer may feel like the right move in many situations, some alternative actions can help you get where you want to be without an impact on your score. Also, remember that unused credit cards won’t hurt your credit at all, nor will they impact how the credit bureaus view your profile. If anything, a credit card with a $0 balance that’s kept open can only strengthen your credit over time.
