When To Close A Credit Card

Brendan Harkness

Brendan Harkness

Updated Apr 17, 2018

To close a credit card, you can simply call the phone number on the back of your card and ask the bank to close your account, but keep in mind closing a credit card will usually impact your credit scores.

Your credit scores will probably not go up when you close a credit card. Instead, you may see your credit scores go down. The impact of closing a credit card varies depending on the other accounts you have on your credit reports.

A record of each credit account you’ve had for the past 10 years is on your credit reports. Credit scores are based on information on your credit reports, so changes to your accounts have the potential to impact your credit scores.

Generally, the more accounts you have and the longer the credit history is on your other accounts, the less likely you are to see big credit score changes from closing a card.

If you want to stop paying an annual fee, that’s one good reason to consider closing a credit card. But if a card is paid off with a $0 balance and has no annual fee, your credit history may be better off if you leave it open and don’t use it.

How Closing a Credit Card Affects Your Credit

There are two major ways closing a credit card can impact your credit scores:

  1. Age of your accounts
  2. How much available credit (or unused credit limit) you have

1) A closed card continues to age

A closed credit card will continue to appear on your credit reports for up to 10 years after it’s closed.

This means that your full account history will still be counted in credit scores, which includes your record of on-time (or late) payments. That’s why you can’t close a credit card to erase a history of late payments.

Credit scoring models consider things like:

  • How long it has been since you opened your oldest credit card account
  • The average age of all your credit card accounts

The account will continue to age throughout those 10 years, which is good for your credit scores (longer history is better).

After 10 years, these accounts will no longer be on your credit reports. That means you’ll lose out on the potential value of the age of the card and your positive activity.

If you’re not using a card, the issuer may eventually decide to close the account due to inactivity, and the 10 year timer will start then. However, that may be years after you considered whether the card yourself, which means more account age for your credit reports.

2) A closed card can hurt your credit utilization

The main negative effect of closing a credit card is how it changes your credit utilization, one of the most important factors for calculating your credit scores. Your credit utilization ratio comes from the total of the credit limits on all your cards, compared to the total of all the balances you’re carrying on your cards.

The lower your utilization, the better it is for your credit scores. But when you close a credit card, you’ll increase your credit utilization by reducing your available credit.

So, for example, if you have 4 credit cards and they all have credit limits of $3,000, your total credit limit would be $12,000. If you’re carrying a $1,000 balance on 3 of those cards, you’d have a total balance of $3,000.

In this case your credit utilization would be 25%, which is getting a bit on the high side. ($3,000 / $12,000 = 0.25)

If you were to close one of those 4 cards, your utilization would go up. Say you close the one without a balance, so your total balance stays the same but your new total credit limit is only $9,000.

Now your credit utilization is 33%, and you’re in the range where you’ll start negatively affecting your credit scores. ($3,000 / $9,000 = .33)

Confused about how paying off credit cards will affect your credit utilization? Learn everything you need to know about How Paying a Credit Card Works.

As you can see, if you only have a few cards losing one could have a big effect. But if you have quite a few cards, losing one will have a smaller impact on your overall credit limit.

This is why you need to be careful when closing credit cards. You could drastically alter your credit utilization ratio, which could have a significant negative effect on your credit scores.

Why You Should Leave Credit Cards Open

You shouldn’t necessarily close a credit card just because you don’t plan to use it in the near future.

There are a few reasons you should leave cards open, related to your credit, general finances, and the benefits you might get from them.

Instead of closing a card, consider just putting it away in a safe spot. It will be there if you ever need it, but you’ll be less tempted to use it if it’s not in your purse or wallet.

If you don’t use a card for a long time, the issuer may cancel it for inactivity. Most experts recommend using a card at least once every 6 months to avoid this.

Your credit utilization won’t change

As described above, closing a credit card will reduce your overall credit limit. If your balances remain the same, this increases your credit utilization, which is bad for your credit scores.

Having a card that you don’t use will increase your overall credit limit, helping to keep your utilization down when you use other cards.

Your card account will continue to age

Even though a closed card will count in your credit scores for 10 years, you’ll be able to age your account even more if you keep it open.

Older accounts on a credit report = better credit scores. If it’s not costing you money, why close it?

You’ll have more variety on your credit reports

It’s good to have a variety of accounts on your credit reports, including credit cards and installment loans.

You’ll have a backup credit line

It can be pretty useful to have a credit line of a few thousand dollars tucked away for emergencies.

You’ll have access to benefits

Besides the basic rewards on your card, like points or cash back, it may also have extra benefits and features.

These include basic shopping and travel protections, as well as more valuable features like travel upgrades and discounts, access to high-end entertainment and services, and a variety of exclusive brand-specific benefits.

Your card can be free to use

If your card has no annual fee, it doesn’t need to cost you anything at all.

You can completely avoid interest charges by simply paying off your balance in full each billing period. Your card won’t cost you anything, and if you’re earning rewards it will be all profit.

To make this a fool-proof process, just set up the auto-pay system to pay the entire statement balance each billing period. That way your card will never accrue interest and you won’t even need to think about it.

For more on the benefits of having more than one credit card, check out our Q&A Video on the value of carrying multiple credit cards.

Why You Should Close a Credit Card

Although there are many reasons to keep your cards open, there are also some good reasons to close your credit cards.

You should consider closing a card if you find yourself in the following scenarios:

Annual fee is too high

If your card has a high annual fee but you don’t use it very much, it will probably be a good idea to close it.

Check your spending: do you earn enough rewards and use the benefits enough to pay for the annual fee? If not, this card is probably just costing you money instead of providing a valuable service.

If one of your cards is costing you money, it may still be valuable when it comes to building credit.

But if a card is costing you money and you don’t need it for that purpose, it’s probably a good idea to close it.

Interest rates are too high

Maybe you only want as many credit cards as you plan to use.

If you also need to carry a balance from month to month, you’ll want cards with the lowest interest rates you can find – preferably with 0% APR for a nice long period.

But remember that you can potentially avoid interest charges, and this card won’t cost you anything if it has no annual fee. So it’s usually not necessary to close a card just because it has a high interest rate.

You want the signup bonus again

Some travel rewards cards offer a big signup bonus for spending a certain amount. This is usually something like “50,000 points for spending $3,000 in the first 3 months.”

This offer is only available once, and it’s usually limited to once per year for any particular person.

But if you’re planning a vacation next year and you own a card that once gave you a nice bonus, it may be a good idea to cancel that card. You can then re-apply for it a bit later on to get that signup bonus again and use it to pay for your vacation.

How to Safely Close a Credit Card

If you decide that closing a card is the right move, you can take some steps to reduce the negative consequences.

Take all the above information into account, and you get these easy tips for safely closing a credit card:

  1. Completely pay off the balance on the card you want to close (and redeem any rewards you’ve earned)
  2. If you have another card from the same issuer, try getting the credit limit on the closed card transferred to it
  3. Try getting credit limit increases on cards you don’t close
  4. Reduce the balances on cards that you don’t close
  5. Close your card; you will usually need to call the number on the back of it (find card issuer phone numbers here)
  6. You can also request a freeze on your card to prevent new payments from being placed on it

Closing a card may take some time, so be patient.

I wasn’t really benefitting much from my Starwood Preferred Guest American Express anymore, so I decided to close it to avoid the annual fee. Before I closed it, I called American Express and explained to them why I wanted to close it and asked if they could transfer the $11,000 credit limit to one of my other American Express cards. That worked, so I ended up with a $19,000 credit limit on another American Express card that previously only had a limit of $8,000. This kept my credit utilization the same even though I closed a card.

– John Ganotis, Founder, Credit Card Insider

Wrapping Up

And that’s all there is to it.

In many cases you’ll be able to keep your cards open, not using them very often and avoiding interest. But there are definitely some situations where an annual fee can make a card cost more than it’s worth.

Just examine your card fees and spending habits, and you should be able to see the right move.

Remember, when you use credit cards intelligently and responsibly, they should be working for you and saving you money. Not the other way around!

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