How Closing a Credit Card Can Affect Your Score
You might be thinking about closing a credit card for various reasons—maybe it has a high annual fee, or you're trying to simplify your finances. But before you close it, you should understand how it might affect your credit score. The answer is: yes, closing a credit card can hurt your score, but the impact depends on your situation.
How Closing a Card Affects Your Credit Utilization
One of the biggest reasons closing a credit card can hurt your score is that it reduces your available credit. Remember, your credit utilization is the balance you're carrying divided by your total credit limit. If you close a card, you lose that card's credit limit, which shrinks your total available credit.
Here's an example: You have two cards with $5,000 limits each ($10,000 total). You carry $2,000 in total balances, giving you 20% utilization. If you close one card, your total limit drops to $5,000, but your balance stays at $2,000. Now your utilization is 40%, a significant jump. Even though you didn't spend more, your score can drop because of the higher utilization ratio.
How Closing a Card Affects Your Credit History Length
Your credit age is another factor in your score. Credit bureaus look at both the age of your oldest account and the average age of all your accounts. If you close an old card, it can lower the average age of your accounts, which might hurt your score slightly.
The good news is that closed accounts usually stay on your credit report for about 10 years, so they still contribute to your credit history length for quite some time. The real damage comes more from the utilization spike than from the age factor.
When Closing a Card Makes Sense
Despite the potential score impact, there are situations where closing a card is the right call. If a card has a high annual fee and you're not using it enough to justify the cost, closing it might make financial sense. The fee drain is often worse than a temporary score dip.
If a card tempts you to overspend or carries a balance you're struggling to pay off, closing it removes that temptation. Your financial health matters more than chasing points. Similarly, if you're dealing with fraud or identity theft on a specific account, closing it immediately protects you.
Closing a card might also make sense if you're simplifying your finances. Managing too many cards creates a higher risk of missed payments, which is much worse for your score than closing a card.
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Alternatives to Closing a Card
Before closing a card, consider these alternatives. You can downgrade to a no-annual-fee version of the same card. Many issuers offer this option, and it keeps your account open and active, preserving your credit limit and account age.
Another option is to "sock drawer" the card—keep it open but put it away and don't use it. Make sure it doesn't have a high annual fee if you're going to do this. Having the account open and unused is better for your utilization ratio and credit history than closing it. Learn more about how long you should keep a secured credit card before making any decisions.
You could also keep the card open and put a small recurring charge on it (like a subscription service) that you pay off each month. This keeps the account active and gives the card issuer reason to keep it open.
What to Do Before Closing a Card
If you do decide to close a card, prepare properly to minimize damage. First, pay off the balance completely. Closing a card with an outstanding balance can hurt your utilization worse than closing an empty account.
Next, redeem any remaining rewards points or cash back. Many rewards expire when an account closes, so use them before you lose them. Check for any automatic payments tied to the card and transfer them to a different payment method.
After taking these steps, contact the card issuer to officially close the account. Ask them to note that the account was closed at your request, not due to missed payments or other issues. Keep documentation of the closure.
If closing the card drops your available credit significantly, consider opening a new credit builder card to offset the loss. A secured card like the Self Visa® Credit Card or Kikoff adds a new credit line with low fees and reports to all three bureaus. Read our Self credit builder review and Kikoff review to compare options.
FAQ
How much does closing a card hurt my score? It depends on your utilization. The impact can be 10-50 points or more, depending on how much your utilization ratio changes.
Should I close old cards or new cards? If you must close one, keep old cards open. Closing a new card has less impact on your average account age.
Can I reopen a card after closing it? It depends on the issuer, but it's often difficult or impossible. You might have to reapply as a new customer.
Closing a credit card doesn't have to be a score disaster if you plan ahead. By understanding the impact and exploring alternatives, you can make the decision that's best for your overall financial health. If protecting your credit score is a priority, try to keep old, unused cards open with no annual fees. Maintaining a healthy credit mix and improving your score over time will serve you well. With tools like Self and Kikoff, you can track your credit and make informed decisions about your accounts.
