Does closing a credit card hurt your credit score?

Follow these practical steps to close a credit card without hurting your credit score:

Check your credit report and score first. Obtain a free copy from sites like AnnualCreditReport.com. Review your report for errors or fraudulent accounts, and note your current credit score to track changes later.
Understand your credit utilization ratio. This ratio is the percentage of your available credit you’re using. Keep it below 30% to maintain a healthy score. Closing a card with a high credit limit may increase this ratio if you carry balances on other cards.
Pay off the balance before closing. Ensure your current balances are fully paid. This prevents late payments, avoids accruing interest, and stops negative marks on your credit report.
Keep older accounts open if possible. The length of your credit history contributes significantly to your score. Closing a very old card can shorten your average account age, potentially lowering your creditworthiness. Weigh this carefully before making a decision.
Switch to a different card if needed. If you want to close a specific card due to fees or inactivity, consider transferring the balance or updating automatic payments to another account. This helps preserve your credit history and utilization ratios.
Notify the issuer and request confirmation. Contact your credit card provider to inform them of your intention and ask for written verification that the account has been closed.
Check your credit report again after a few weeks. Review to ensure the account status reflects the closure and no errors exist. Dispute any discrepancies promptly.

Will Closing a Credit Card Lower Your Score?

Many people wonder if closing a credit card will lower their credit score. Your score is influenced by several factors, including your credit history, how much credit you use, and your payment record. When you close a card, it can impact these factors differently. Understanding these effects helps you make informed decisions.

Closing a credit card can sometimes lower your score, but it depends on your entire credit profile. For example, if the card you close has a high credit limit and a long history, closing it might affect your score more than closing a newer or lower-limit card. Conversely, if you have multiple cards and a low utilization rate, closing one might not significantly affect you.

Consider these points before closing a credit card:

How long you’ve had the card: Older accounts boost your credit history, which benefits your score. Closing a long-standing card can shorten this history and potentially lower your score.
The credit utilization rate: This ratio measures your balances relative to your credit limits. If closing a card reduces your total available credit, your utilization rate may rise, possibly impairing your score.
Your overall credit mix: Lenders prefer a diverse mix of credit types. Closing a card could slightly alter this profile.

For instance, if you have a credit card open for several years with a $10,000 limit and a small balance, closing it might decrease your total credit and increase your utilization rate, potentially lowering your score temporarily.

However, if you’re planning to cancel a new or rarely-used card and your utilization stays low, the impact may be minimal. Sometimes, closing a card can even improve your credit profile if it reduces fees or simplifies your finances.

Common Myths About Credit Card Closures

Many misconceptions exist regarding how closing credit cards affects your credit. These myths can cause undue concern or lead to poor financial decisions. Here, we clarify some common myths with facts to help you understand the real impact of closing a credit card.

Myth 1: Closing a credit card will ruin your credit score permanently

Some believe that closing a card will instantly and permanently damage their credit score. In reality, closing a card may cause a temporary dip, but long-term effects depend on your overall credit profile. If you maintain other accounts with low balances, your score can recover over time. Consider your reasons for closing and how it aligns with your financial goals.

Myth 2: Closing a card will eliminate your debt

This isn’t true. Closing a credit card doesn’t erase any outstanding balances. If you owe money, you still need to make payments until the debt is fully paid. Closing the account simply prevents further use but doesn’t remove your existing debt.

Myth 3: Closing an unused credit card boosts your score

While it might seem logical to close unused cards, doing so can reduce your credit mix and shorten your credit history, potentially lowering your score. If the card has a long, positive track record, closing it could do more harm than good. Often, it’s better to keep it open, especially if there are no annual fees.

Myth 4: Closing a card always increases your utilization rate

When you close a card, your total available credit decreases, which could raise your utilization rate if you carry balances elsewhere. This may temporarily harm your score. To mitigate this, pay down other balances or request higher credit limits on remaining accounts.

Myth 5: You should never close a credit card with an annual fee

This isn’t always true. If the annual fee outweighs the benefits, closing the card might be best. Consider negotiating with the issuer for a fee waiver or downgrading to a no-fee version before closing, which can preserve your credit history and reduce impact on your score.

Final tip: Think carefully before closing a card

Before making a final decision, evaluate your reasons, review your entire credit situation, and consider alternatives. Sometimes, keeping an unused card open is more beneficial for your credit health, especially if it has a good history and no fees.

How Closing Cards Affects Your Credit Utilization

When you close a credit card, your credit utilization ratio can be affected—a key factor in your credit score. This ratio reflects the percentage of your total available credit that you’re using. A lower utilization generally boosts your score, while a higher one can harm it.

If you close a card with a high credit limit, your total available credit decreases. Consequently, with the same balances, your utilization ratio increases. For example, with two cards totaling $15,000 credit and $2,000 owed, your utilization is about 13.3%. Closing the $10,000 limit card reduces total credit to $5,000, raising utilization to 40%, which could negatively impact your score.

To manage this effect:

Pay down balances before closing a card.
Avoid closing high-limit cards if you plan to apply for new credit soon.
Request credit limit increases on remaining cards if possible.
Spread balances across multiple cards to keep utilization low overall.

Check your credit report before closing a card. If your utilization will spike, consider paying some balances or keeping the card open. Proper planning ensures your credit remains healthy after closing an account.

How to Close a Card Without Hurting Your Score

Closing a credit card can seem urgent, but doing it improperly may hurt your credit. To close a card safely and maintain your score, follow these tips:

Check your credit report and score first. Access your report via AnnualCreditReport.com. Review for errors, outdated info, or fraud, and note your current score.
Understand your credit utilization ratio. Aim to keep it below 30%. Closing a high-limit card could raise this ratio if balances exist elsewhere.
Pay off any remaining balance. Always clear outstanding debt before closing to avoid late payments and fees.
Keep your oldest accounts open if possible. Older accounts contribute positively to your credit age. Closing one might reduce your average account age.
Consider switching or downgrading the card. If applicable, reduce annual fees by downgrading to a no-fee version or utilizing other features.
Notify the issuer and request written confirmation. Confirm the account is closed and keep documentation.
Review your credit report again in 30-60 days. Ensure that the account shows as closed and verify data accuracy.

Careful timing, understanding your credit, and strategic planning allow you to close a card without long-term damage. Always consider the implications, maintain low balances, and monitor your report.

Alternatives to Closing a Credit Card

If you’d rather avoid closing a card to protect your credit profile, there are alternatives you can consider:

Keep the card open. If there are no annual fees and you can avoid overspending, keeping it active benefits your credit history and utilization.
Request a credit limit reduction. Lowering your limit can help reduce utilization without closing the account.
Settle or pay the current balance. Clear any existing balances to improve your debt ratio and credit profile.
Temporarily freeze the account. Some issuers allow you to lock the account against new purchases without closing it.
Request a product or account change. Downgrade to a no-fee or different type of account, maintaining credit history and limits.
Use the card occasionally. Making small purchases every few months and paying in full keeps the account active and in good standing.

Choose the alternative that aligns with your financial habits and goals. Contact your issuer to explore available options and implement the strategy that best protects your credit health.

Improving Your Credit After Closing a Card

Closing a card might cause a temporary dip in your credit score. To recover and strengthen your credit, focus on responsible habits and monitoring:

Review your credit report regularly. Obtain free reports from Experian, TransUnion, and Equifax via AnnualCreditReport.com. Look for errors, outdated info, or unfamiliar accounts.
Understand how closing affects your credit. It reduces your available credit, potentially raising your utilization ratio. Managing balances helps mitigate this impact.
Maintain low credit utilization. Keep your overall ratio below 30%. Pay balances early and avoid new debt.
Diversify your credit mix responsibly. Having different credit types, like installment loans or mortgages, can boost your score. Use new credit sparingly.
Practice good borrowing habits. Make timely payments on all remaining credits and avoid unnecessary applications.
Build positive credit history. Become an authorized user or get a secured credit card if your history is limited.
Avoid applying for multiple new credits simultaneously. Multiple inquiries can temporarily lower your score. Space out applications.

Patience and consistent good credit behavior over time will help rebuild your score after closing a card. Focus on responsible borrowing, regular credit monitoring, and low balances for best results.

Important Questions Before Closing Your Credit Card

Assessing your reasons and understanding the potential impact are crucial before closing a credit card. Consider these key questions:

Why do I want to close this card? Clarify if it’s for avoiding fees, reducing temptations, or no longer needing the card. Your motivation guides your decision.
How will closing this affect my utilization ratio? Will your total available credit decrease significantly? Will your balances increase as a percentage?
Does this card influence my long-term credit history? Closing an old account might shorten your credit age, lowering your score marginally.
Are there pending balances or rewards to redeem? Pay off and redeem any unused rewards beforehand.
Can I downgrade instead of closing? Check if you can switch to a no-fee or different type of card to maintain your credit history.
What impact might this have on future plans? Closing could affect loan eligibility or interest rates if your score changes.
Do I understand the cancellation process and any fees? Review your issuer’s procedures and get confirmation of closure.

Answering these questions helps you make an informed choice, safeguarding your credit health and avoiding unnecessary setbacks.