Does closing a credit card hurt your credit score?

Summary

• Closing a credit card can impact your credit score, but the effect is usually temporary.
• There are alternatives to closing a credit card that can help protect your credit score.
• If you do close a card, you can take steps to protect your financial health.

Closing a credit card may hurt your credit score  because it can have an impact on the factors that calculate your score. 

Unless a card is costing you money or causing spending issues, the better financial decision may be to keep it open, use it lightly, and focus on paying off your balances. This kind of responsible credit behavior can improve your score and give you more flexibility as you pursue financial goals, such as paying student loans, saving for a house, or investing in your child’s college fund.

Read on to learn more about how closing an account affects your score, when it may be a smart decision, and how to ensure your credit remains healthy if you do cancel a credit card.

 

What happens to your credit score when you close a credit card?

Your credit score often decreases after you close a credit card because of the impact it has on key factors that typically go into a credit score, including:

• Credit utilization ratio. Closing a credit card increases your credit utilization  – the percentage of available credit you use. Experts usually recommend keeping your credit utilization below 30%. When you close an account, all available credit associated with that card is removed from your total credit. Whether or not you used the card often, the available credit was still a part of that calculation.
• Length of credit history. A longer credit history may have a positive impact on your credit score. Canceling an older card can reduce the average age of your accounts.
• Credit mix and number of accounts. Credit mix refers to the types of credit you maintain, such as revolving credit cards or installment loans. Credit reports that reflect a variety of debt, responsibly paid, are likely to bear higher credit scores.

 

When does it make sense to close a credit card?

Deciding if you should cancel a credit card depends on your individual financial situation and habits. Here are a few examples of when it might make sense to close your credit card, even with the potential impact to your score.

You’re paying a high annual fee

You might want to close a card with a high annual fee, especially if you’re not reaping the benefits, such as travel rewards or cash back on purchases. When that’s the case, the cost of keeping the card may outweigh any value it adds to your score.

The interest rate is too high

You pay interest on your credit card  whenever you carry a balance over to the next billing cycle. If you regularly carry a balance, or anticipate needing to, a card with a high interest rate may not be worth keeping.

You don’t use the credit card anymore

Closing a credit card you don’t use anymore can make sense — especially if it has a low credit limit. That way, you may minimize the impact on your credit utilization.

You have a difficult time managing the debt

Reducing the number of active credit cards in your wallet might help you focus on paying down existing debt without adding to it. While having more cards can be beneficial if handled responsibly, fewer cards mean fewer due dates to track.

You’ve opened a card with better rewards

Canceling your old card may be a good decision if you find a credit card with better rewards. That’s especially true if the new card offers low interest on balance transfers, like the U.S. Bank Altitude® Go Visa Signature® Card, and you pay off the balance before the introductory period ends.

 

When does it make sense to keep a credit card open?

Even cards you barely use can play a role in the calculation of your credit score. These examples may help you decide when to keep a card open.

It’s your oldest credit account

Credit scores often factor in the age of your oldest account, so an individual account that’s been managed well over time usually has a positive impact on your credit. Plus, your oldest account contributes to the average age of all your accounts – another factor that can benefit your credit score.¹

You don’t have many other open credit accounts

Credit scoring models typically reward having a mix of credit types – like credit cards, loans, and lines of credit. If you only have one or two accounts, holding on to a credit card boosts that mix, which can benefit your score.

The account is in good standing

A credit card account that’s in good standing – meaning one that shows responsible repayment or has been paid off with no missed payments – contributes positively to your credit history, and therefore may be worth keeping, even if it gets little use.

 

What to do instead of closing your card

If a temporary dip in your credit score is a cause for concern, consider some alternatives before you close a card: 

Pay off other balances to lower your utilization

Say you have a card with great rewards that you use all the time, but you’re concerned about your utilization. Instead of canceling the card you want to keep, try paying off your other credit cards.  This may lower your utilization ratio.

Downgrade instead of closing the card

When a card provider offers several types of credit cards, you may be able to ask for a product change.  This usually allows you to switch to a card in your provider’s collection with a lower interest rate or annual fee while keeping the original account history on your credit report.

You might also ask about a retention offer. Card providers sometimes lower fees or offer additional rewards to get cardholders to stay.

Product changes and retention offers may require a little legwork on your part – and there’s no guarantee your provider will accommodate the request. But the effort may be worth it if you end up keeping a card that helps your credit score.

Use the card sparingly

If you're worried the provider might close the card due to inactivity, consider setting up an automatic payment to pay one recurring bill.  Your best bet may be a small bill for a service you use regularly, like a streaming subscription. That way, your credit report retains the total credit available, and you’ll be more likely to notice if there are any changes to the amount due.

 

What to do after you close a credit card

If you do decide to close a credit card account, you can take steps to minimize the impact on your score. These might include:

• Monitoring your credit score for changes. Closing an account often causes your credit score to dip, but it doesn’t always happen right away, and the effect is temporary – generally just a few months. You’ll want to know where you stand before applying for new credit.
• Reviewing your credit report. A few months after you close the account, check that your credit report indicates it was “closed at customer request.”
• Updating or canceling recurring payments. Change the payment method on any bills you have linked to the old card and remove it from mobile wallets.
• Destroying the card. Protect your credit from accidental or fraudulent charges by shredding or cutting the card, especially the chip and magnetic strip.

Remember: You need to pay the remaining balance on a closed credit card account and be sure to pay it on time. Otherwise, the card company will charge interest.²

 

Closing a credit card? Make it a thoughtful choice.

Closing a credit card is a decision that deserves careful thought, as it can indirectly impact your credit score. Consider alternatives to canceling a credit card, make sure it’s the best decision for your situation, and look for ways to manage the impact. Making careful, informed choices about your credit card accounts can put you in a better position to achieve your financial goals.

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