How to Close a Credit Card Without Damaging Your Credit Score

How to Close a Credit Card Without Hurting Your Credit Score

If you’re struggling with credit card debt, you’re not alone. According to Experian, consumers had an average credit card balance of $5,221 in 2021. And, because some credit cards charge high interest rates, that balance can quickly balloon out of control.

Closing a credit card can be an effective way to limit your spending, but closing a card can affect your credit score. However, there are safe ways to cancel a credit card without damaging your credit.

To close a credit card and minimize the impact to your credit, look at your credit card’s age, fees, and credit utilization.

Is It Bad to Close a Credit Card?

Whether you have too many credit cards to manage or a card that has high fees, you might be wanting to close one or more of your accounts. Although closing a card can be a smart idea for some people, there are some drawbacks to consider:

You May Increase Your Credit Utilization

Your credit utilization affects 30%¹ of your FICO credit score. Credit utilization is how much of your available credit you use. For example, let’s say you have three credit cards:

Card #1 has a $5,000 limit. Currently, you have a balance of $2,000.
Card #2 has a $2,500 limit, but your balance is $0 right now.
Card #3 has a $1,000 limit, and you currently have a balance of $900 on the card.

Your total available credit is $8,500, and you are using $2,900 of it. Divide your current balance by your total available credit to get your credit utilization. So, in this scenario, you have a credit utilization of 34%.

When you close a credit card, you lose that available credit and your credit utilization rises. For instance, let’s say you closed card #2. You’d lower your spending limit by $2,500, so the new amount of available credit is $6,000. Divide your current balance by the available credit — $2,900 divided by $6,000 — and your new credit utilization is 48%. Having such a high credit utilization can cause your credit score to decrease.

It Affects the Length of Your Credit History

When evaluating your credit, lenders want to see that you have a history of managing debt responsibly. In fact, the length of your credit history is so important that it makes up 15%¹ of your FICO credit score.

FICO considers the age of your oldest accounts, the age of your newest account and the overall age of all your accounts when determining your score.

Before canceling a card, think about how long the account has been open. If the card you want to cancel is your oldest account, closing it could significantly shorten your credit history and drop your score.

You Might Impact Your Credit Mix

Creditors look for borrowers that are capable of juggling multiple forms of debt, such as installment loans and credit cards. That’s why having multiple forms of credit — known as your credit mix — determines 10%¹ of your credit score.

If you only have one or two credit cards and close an account, you’ll have less of a credit mix and your credit score may go down.

Why You Should Close a Credit Card

Despite the drawbacks of closing a credit card, it can make sense in the following situations:

Your card has very high fees. Some credit cards, especially those marketed to people with less-than-perfect credit, can be expensive to have. For example, some cards charge an upfront setup fee and monthly fees. If your card charges high fees, closing it can be a good idea.
You don’t use the card enough to justify the annual fee. Even if you have good credit, you may have a card with a high annual fee – like a rewards card. While the fee may be worth it if you earn enough rewards, you might not use the card enough to warrant the fee. In this case, closing it will help you save money.
You’re having trouble managing your spending. Credit cards are convenient, but they also make it easy to overspend. If you find yourself racking up credit card debt from unnecessary shopping sprees or impulse purchases, canceling your card will help curb your spending.
Your APR is going up. If your cards carry a balance, the APR will have a big impact on how much interest will accrue. Your creditor may notify you that your APR is increasing. If you can transfer your balance to a card with a lower APR, canceling the current card will reduce interest charges.
You don’t use the card’s benefits or rewards. Perhaps you signed up for an airline card to take advantage of a bonus offer. Or you opened a card to complete a balance transfer. Whatever the case may be, you might find that the card isn’t useful after the initial promotion expires. If you have a credit card that you never use, canceling it may be a good idea to avoid added fees.

Why You Should Not Cancel a Credit Card

Although canceling a credit card can make sense in some situations, it isn’t always a good idea. Think twice before closing a card for the following reasons:

Your credit card is your oldest credit account. If the card you want to close is the oldest credit account on your credit report, closing it will have a significant impact on your credit score. If you’ll need a strong credit score in the near future – for example, if you intend to buy a home or car in the next year or so – think about keeping the card open until after you take out the loan. Otherwise, you may have to wait until you build your credit back up to qualify.
You paid off your debt and no longer need a credit card. If you paid off your debt, you may think you won’t need a credit card anymore. However, having a credit card isn’t just convenient – it can also be a necessity. If you travel, some hotels and car rental companies require a credit card on file. Those that don’t have a credit card may be able to use a debit card, but the company may put a large hold on your cash.
You don’t use your credit card very often. Even if you don’t use your card on a regular basis, having a credit card handy can be helpful, particularly if there’s an emergency. Whether you have an unexpected car repair or medical expense, a credit card can help cover the cost.
You think you have too many credit cards. While juggling multiple cards can be challenging, there’s no need to cancel them. Closing your cards will lower the amount of available credit and damage your credit score, so consider keeping them open instead. You can use one or two cards on a regular basis and keep the rest available for emergencies. Typically, the cards will stay active so long as you use them once per year, even if you only use them for small transactions.
You want a different credit card. You may think that closing a card is a good idea if you plan on opening a new one. But unless your current card has high fees, there’s no need to close it. You can open a new card and keep the current one as a backup.

How to Safely Close a Credit Card

If you’ve weighed the pros and cons of closing a card and decide to move forward, here’s how to close a credit card and minimize the damage to your credit score:

Consider the timing. If you plan on applying for another form of credit, such as a home loan, postpone closing the card until after you close on the loan. Otherwise, canceling the card can drop your credit, making it harder to qualify.
Meet with a debt counselor. If you are struggling with debt, set up a consultation with a non-profit credit counseling agency. A debt counselor will help you create a budget and debt repayment plan.
Redeem any rewards or benefits. When you close your card, you may lose any unredeemed reward dollars, points or miles. Make sure you redeem your rewards before canceling your card.
Pay off your balance. Check your existing card balance and pay it off in full to avoid unexpected late fees.
Contact the card issuer. Call the card issuer to close the account and ask for verification sent via email or postal mail for your records.
Check your credit report. Check your credit report – you can do so for free at AnnualCreditReport.com – to see if the card has been properly closed. It can take two or three months for an account to be updated as closed. After that, if the card is still listed as active, contact the card issuer to get your credit report corrected.

Managing Your Credit

Closing a credit card can have a significant impact on your credit score, so it’s important to weigh the benefits and drawbacks. Depending on your credit history and financial goals, it may make sense to delay canceling your card for now.

If you do decide to close your credit card, make sure you use up your rewards before canceling and verify that the account has been closed by checking your credit report.

Learn More: Do Student Loans Affect Credit Scores?