Does Closing a Credit Card Hurt Your Credit Score?

Joey Ocampo, Senior Commercial Loan Specialist, First Republic Bank
May 19, 2022

  • There are lots of reasons you may need to close a credit card.
  • However, canceling a credit card can hurt your credit score.
  • If you need to close a card, consider how doing so affects your credit utilization ratio and the average age of your accounts.

You might what to close a credit card account for many reasons, from trying to consolidate your debt to eliminating an annual fee to separating from a spouse who shared an account. However, before you close a credit card, you'll want to evaluate the urgency of your decision. That's because closing credit cards can negatively affect your credit score.

Read this article to learn more about what happens when you close a credit card account. You'll also discover precautions you can take to ensure that your account closure doesn't cause too much damage.

How does closing a credit card affect your credit score?

Closing a credit card can indirectly hurt your credit score by driving up your credit utilization ratio and lowering the average age of your accounts. Fortunately, taking preventative steps can help reduce some of the impacts.

First, let's start with a dive into what goes into your credit score. In addition to the factors above, credit rating agencies also consider your credit mix, payment history and credit history. Your credit utilization ratio (reflected in your FICO score under amounts owed) and average account age represent 30% and 15% of your score, respectively. That means that nearly half of what comprises your score may be affected when you close a credit account.

That said, it's important to note that each credit agency has a slightly different formula for determining individual credit scores.

Credit utilization

Credit utilization refers to how much of your total credit limit you are using. It's often expressed in a ratio determined by what you owe on your credit cards compared to how much available credit you have. Credit utilization accounts for 30% of your FICO score.

When you close a credit card, you reduce the amount of credit available to you. So unless you also simultaneously pay off debt, your credit utilization ratio will increase. Credit bureaus usually prefer that you have a credit utilization ratio of 30% or less. A higher percentage could negatively affect your score.

On the flip side, if you have a credit card that you don't use very often — that can help improve your credit score. That's because that card's credit limit adds to your overall credit availability, reducing your credit utilization ratio. And a lower ratio can give your credit score a boost.

Average age of accounts

The average age of your credit accounts is another factor that impacts your FICO score (15%). Credit rating agencies consider how long you've held each account and calculate the average age of your accounts.

If you close a credit card, you shorten that account's duration, which may affect your overall average account length. In turn, that could negatively affect your credit score.

When Will My Credit Score Be Affected?
Even after you close a credit card, your credit score will still reflect the payment history on that card — including any late payments — for 7 to 10 years. Any changes made to your credit report usually show up within 30 to 60 days.

However, not all credit card accounts have the same impact. It all depends on the average age of your accounts. For example, if the average age of your accounts is five years, and you close a card you’ve had for one year — while keeping other, longer-held cards open — then that has less of an impact on the overall average.

But if — in the same scenario — you close a card you’ve had for 10 years, you may drop the average age of your accounts significantly. Therefore, it may be best to maintain accounts that you’ve had for a long time, even if you’re not regularly using them.

When to consider closing a credit card

If you have multiple credit card accounts, you may be wondering: is it bad to close a credit card? Even with the above considerations, people still may encounter valid reasons to close their credit card accounts. Again, you may be trying to avoid high annual fees, embarking on a debt management program or separating from a spouse.

You may also need to close accounts if you’ve been the victim of identity theft. You certainly don’t want to maintain credit accounts that you didn’t open or that were used for fraudulent purposes. If you have experienced identify theft, contact the credit bureaus to ensure that activity from those fraudulent accounts doesn’t appear on your credit reports.

But what about wanting to close a credit account to limit spending or reduce the likelihood of missed payments? This approach requires more consideration because of its impact on your credit score when closing a credit card.

Before asking yourself “should I close my credit card?,” you can consider a few alternatives. For instance, you may restrict the use of a specific card, cut it up or eliminate it from your digital wallet. Also, even if you close an account, missed payments and other credit missteps still show up on your credit report for up to 10 years.

So finding a way to preserve your account without incurring additional late payments may be better for your credit score than closing it altogether.

How to close a credit card safely

If you still need to close an account, you can take steps to mitigate the negative impact and maintain your good credit. For example, consider paying down the balance on your other cards, if possible. That way, you can help preserve a lower credit utilization ratio once you close your credit card.

Also, evaluate the age of your other accounts to ensure enough accounts of a decent age are open to minimize the impact on your credit history. Understanding how credit scores are calculated can help you reduce the effect of closing an account and help you make smarter decisions about your credit card accounts.

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