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Closing a credit card can subtract points from your credit score. The impact is likely to be greatest if you are relatively new to credit and/or have few cards.
If your credit score is close to a lender’s cutoff, it may be more difficult for you to be approved for a loan, an apartment, or another credit card. (You can see where you stand with your free credit score, which updates weekly on NerdWallet. ).
It is not always advisable to cancel a credit card, but you should exercise caution and thoughtful consideration in light of the possible loss of credit score points.
A Comprehensive Guide to Understanding the Impact of Closing a Credit Card on Your Credit Score
Closing a credit card can be a tempting move, especially if you’re not using it anymore. However before you take the plunge it’s crucial to understand the potential impact on your credit score.
The Short Answer: Yes Closing a Credit Card Can Hurt Your Credit Score
While it’s not always a guaranteed outcome, closing a credit card can negatively affect your credit score in several ways:
- Reduced Available Credit: When you close a credit card, you’re essentially reducing your available credit limit. This can lead to a higher credit utilization ratio, which is the percentage of your available credit that you’re actually using. A higher credit utilization ratio can hurt your credit score.
- Shorter Credit History: Closing a credit card can shorten your average credit history, which is another factor that credit scoring models consider. A shorter credit history can also negatively impact your score.
- Loss of Positive Account History: Closing a credit card with a long history of on-time payments can remove positive information from your credit report, potentially lowering your score.
The Impact Depends on Several Factors
The degree to which canceling a credit card will lower your credit score varies on a number of variables, such as:
- Your overall credit utilization: If you have a high credit utilization ratio before closing the card, the impact will be greater.
- The age of your credit history: If you have a short credit history, closing an older card can have a more significant impact.
- The number of credit cards you have: If you have a limited number of credit cards, closing one will have a greater impact on your credit utilization ratio.
- The credit scoring model used: Different credit scoring models may weigh these factors differently.
Alternatives to Closing a Credit Card
Before you close a credit card, consider these alternatives:
- Keep the card open and use it occasionally: This will help to keep your credit utilization ratio low and maintain a positive payment history.
- Ask for a lower credit limit: If you’re concerned about overspending, you can ask your credit card issuer to lower your credit limit.
- Downgrade to a no-fee card: If you’re paying an annual fee, you can often downgrade to a no-fee version of the same card.
When Closing a Credit Card Makes Sense
In some cases, closing a credit card may be the best option. For example:
- The card has a high annual fee that you’re not using: If you’re not getting any value from the card, it may be worth closing it to avoid paying the annual fee.
- You’re concerned about identity theft: If you’re worried about your credit card information being stolen, you may want to close the card and open a new one with a different number.
- You’re trying to simplify your finances: If you have too many credit cards, it can be difficult to keep track of them all. Closing some of your cards can make it easier to manage your finances.
Making an Informed Decision
The choice of whether or not to cancel a credit card is ultimately a personal one. You can make the best choice for yourself by being aware of the possible effects on your credit score and taking the alternatives into account.
Additional Tips
- Check your credit score before closing a card: This will give you a baseline to compare your score to after you close the card.
- Notify your creditors: If you’re closing a card that you use for recurring payments, be sure to notify your creditors of your new card number.
- Monitor your credit report: After you close a card, be sure to monitor your credit report to make sure the card is closed and that there are no errors.
Remember, closing a credit card is a big decision. By carefully considering the potential impact on your credit score and exploring alternatives, you can make the best choice for your financial situation.
Call and ask for better terms
If you are canceling due to fees, you might want to give the issuer a call to see if there are any fee-free cards that you qualify for. You might be able to switch to another card from the same issuer and keep your payment history.
The same goes for cards that are no longer a good fit. Perhaps when you first opened a credit card, you desired an interest-free period, but now you would prefer a travel rewards card. If the issuer offers one you qualify for, you may be in luck.
You’ve graduated to a permanent card
Some cards arent meant to be kept forever. Secured cards, for example, are like credit-card training wheels. Some issuers will let you “graduate” to an unsecured card with better terms after you’ve demonstrated that you consistently make your payments on time. But if the issuer doesnt offer cards that are more desirable, canceling may be a smart option. (Take these steps before closing your account. ).
What CLOSING a Credit Card Did to My Credit Score…
FAQ
Is it better to cancel unused credit cards or keep them?
How much can closing a credit card hurt your credit?
How do I get rid of a credit card without hurting my credit?
What happens if you close a credit card with a zero balance?
Will closing a credit card affect my credit score?
Your credit score might be hurt if closing the card changes your credit utilization ratio. Credit utilization measures how much of your total available credit is being used, based on your credit reports. The more available credit you use, the worse the impact will be on your score.
Can you close a credit card without hurting your credit score?
If all of your credit cards show $0 balances on your credit reports, then you can close a card without hurting your credit score. The higher the credit utilization ratio, the more it can negatively impact your credit score. That’s why it is commonly recommended to keep the ratio below 30%. Canceling a credit card is usually a bad idea.
Should you close a credit card if you lose credit?
The potential loss of credit score points doesn’t mean you should never close a credit card, but it does mean you should think strategically and choose carefully. See your free score anytime, get notified when it changes, and build it with personalized insights. Does closing a credit card hurt your credit?
What happens if you close a credit card No 1?
In this scenario, your credit utilization ratio is 50%, because your total balance across both cards is half the available credit. But by closing card No. 1, your credit utilization ratio would spike to 100%. That’s because you would be left with a $1,000 total balance and $1,000 credit limit. This could negatively impact your credit.