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How Closing Credit Cards Could Hurt — Not Help — Your Credit

8 min read
Brendan Harkness Michelle Black By Brendan Harkness
Expert reviewed by Michelle Black
Updated Sep 24, 2019

Whether you have a card you never use or a pull-your-hair-out experience with a particular card issuer, there will probably come a day when you want to close a credit card. But before you get worked up, call your credit card company, and cancel your card, be sure you understand the potential consequences of that decision.

Closing credit cards could lower your credit scores — but in a few cases, it’s a wise move.

Read on for reasons why you shouldn’t close a credit card account, plus three situations when closing a credit card makes sense, and how to do so safely.

How Closing Credit Cards Affects Your Credit

There are two ways that closing a credit card might negatively impact your credit scores:

  1. It eventually reduces the age of your accounts
  2. It reduces how much available credit you have, and that could increase your overall credit utilization ratio

Age of Accounts

When it comes to credit scores, longer credit history is better.

Credit scoring models, like FICO, consider many factors when calculating your scores, including:

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

A common credit myth leads many people to believe that closing an account will remove the item from your credit reports. A twist on that myth says that the item remains on your reports, but scoring models no longer consider it when calculating your average age of accounts. However, both of the above are untrue.

Positive closed accounts will continue to appear on your credit reports for up to 10 years after they’re closed. They’ll continue to age throughout those 10 years and be counted in your average age of accounts. That’s good for your credit scores.

If you think closing an old credit card will erase bad payment history, think again. It’s not a magic wand: Payment history, including late payments, will also remain on your reports and affect your scores after you close an account. The only difference is that, with negative accounts, the Fair Credit Reporting Act typically requires that they be removed from your reports after 7 years, not 10.

Eventually, after 7 to 10 years, closed accounts will no longer show up on your credit reports. That means you’ll lose out on the potential value of the age of the card. In FICO Scoring models, your credit history length is worth 15% of your credit score. So, while it’s not always going to be the end of the world to have an old account removed from your reports, there is a possibility that the card’s eventual removal could inflict some damage. As a rule of thumb, it’s better for your credit to keep older accounts with on-time payment history open for as long as you can.

Credit Utilization

A more important factor considered in the calculation of your credit scores is your credit utilization ratio. which compares your total available credit to your total balance (or total credit card debt). In general, the lower your utilization ratio, the better your credit scores.

When you close a credit card, you reduce your total available credit (aka credit limits). This can potentially increase your utilization rate if your credit reports show outstanding balances on any of your credit card accounts.

If you close a credit card and your credit utilization rate increases as a result, there’s a very good chance that it will have a negative effect on your credit scores. In fact, depending upon how much your utilization rate increases and the rest of the information on your reports, that card closure could impact your scores significantly.

Here’s an example of how closing a card could increase your utilization rate:

  • You have four credit cards with credit limits of $3,000 each, making your total credit limit $12,000. If you carry a $1,000 balance on three of those cards, your total balance is $3,000 — and your credit utilization rate is 25% ($3,000/$12,000 = 0.25).
  • If you close your unused card, you’ll reduce your total available credit to $9,000. So, assuming your balance stays the same, your new credit utilization rate will be worse: 33% ($3,000/$9,000 = 0.33).
Want to learn more about utilization and how the amount you pay impacts your credit scores? Here’s everything you need to know about how paying a credit card works.

Remember, the negative impact of closing a credit card varies depending on the other accounts you have on your credit reports. Often, the more credit accounts you have, the higher your credit limits may climb. If you have high limits and low balances on most of your credit cards, closing one of your accounts is less likely to cause big credit score changes.

Why You Should Leave Credit Cards Open

Don’t plan to use your credit card in the near future? That doesn’t necessarily mean you should close it.

Here are five reasons why it’s a smart idea to keep credit cards open:

  1. Your card will continue to age: As you now know, older accounts on your credit reports can mean better credit scores. If a card isn’t costing you money, why close it?
  2. Your credit utilization rate may stay lower: Having a card you don’t use will increase your overall credit limit. This can help to keep your utilization rate lower when you do use other cards.
  3. You’ll maintain variety: Credit scoring models like to see a variety of accounts on your credit reports, including credit cards and installment loans.
  4. 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.
  5. You’ll have access to benefits: Besides basic rewards like points or cash back, your card may also have extra benefits and features you don’t want to lose. (Think: shopping and travel protections and discounts, access to high-end entertainment and services, or brand-specific benefits.)

By paying your balance in full each billing period, you’ll completely avoid interest charges — and continue to reap the benefits. And best of all, cards without annual fees won’t cost you a cent.

If you really don’t want to use your card anymore, consider putting it in a safe spot instead of closing it. That way, it’ll be there if you need it — but won’t tempt you like it would in your wallet.

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.

Issuers May Close Inactive Cards

One of the ways card companies make money is through swipe fees when people use their cards.

Maintaining an account costs credit card companies some overhead, so if they’re not making money from you they may close your unused card for inactivity.

You can usually avoid this by using your card at least once every six months.

Earlier we mentioned that closed, positive accounts can stay on credit reports for up to 10 years from the time the account is closed. Even if a credit card issuer eventually closes your account for inactivity, your credit will likely be better off than if you proactively closed the card yourself.

You may have several more months or years between when you considered closing the card and when the issuer actually starts the 10-year clock by closing it for inactivity. Or, if you’re willing to use the card just a few times a year, even for a small purchase, you may be able to avoid having the account closed altogether.

When 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:

1) Not Enough Value from the Annual Fee

If you have an unused card that comes with an annual fee, it’s probably wise to close it.

Unless you’re earning enough rewards or benefits to make up for the annual fee — which is unlikely if you’re not using it — your card is costing you money instead of providing a valuable service.

Does this sound like your situation? Consider downgrading your credit card to a different card without a fee, or product changing to a card you’d actually use. This will (usually) let you keep the same account open, so your credit scores won’t be affected.

If you want to replace the card to continue building credit, opt for one of the many cards without an annual fee.

2) Another Signup Bonus

Some cards, travel rewards cards in particular, offer generous signup bonuses for opening a new card: 50,000 points, for example, after you spend $3,000 in the first three months.

Though these offers are sometimes limited to once per person per lifetime, others give you the chance to get the bonus again after a year or two.

If you already got a signup bonus with a card, but you’re not getting value from it anymore, consider closing it if you might be able to get an introductory bonus again in the future. It may come in handy when you’re planning a trip, or your lifestyle changes and you’re traveling more. Just read the terms and conditions carefully before going this route.

3) Divorce

If you share a joint credit card account with a spouse, it can be a big problem during a divorce. With a joint card, both cardholders are legally liable for the debt and can make changes to the account. So, if your ex charges up a huge balance on the account before you separate, you could be left holding the bag financially for his/her shopping sprees.

Your best bet is usually to close joint credit cards during a divorce. This prevents both you and your ex from making any new charges. If you want to protect your credit, you’ll need to continue making payments on the account (or make sure your ex is doing so) until the balance is paid off in full.

Note: If your ex is simply an authorized user on your account (or visa versa), it’s easy to have the other person removed from the account. This stops any future charges from taking place. But you’ll still have to work together or through the court to make sure any outstanding balance is covered. Remember, if you’re the primary account holder, you’re not off the hook from a credit perspective until the balance is $0.

Closing a Card With a Balance

If you’re carrying a balance on a card and want to close it, it’s best to pay off the debt first. We recommend the avalanche method.

You don’t need to close your card just because it has a high interest rate, though. You could consider transferring the balance to another card with a lower interest rate. Some cards are designed for this purpose, with a long 0% introductory APR on balance transfers.

When you transfer a balance, there’s no need to close the card you transfer a balance away from — as long as it has no annual fee you’re probably better off leaving it open with a $0 balance and not using it.

How to Safely Close a Credit Card

Decided that closing a credit card is the right move for you?

Here’s how to do it the right way, so it has the least potential negative impact on your credit scores.

  1. Completely pay off the credit card balance (and, if the rewards are card-specific — i.e. Chase Ultimate Rewards points instead of Delta SkyMiles — be sure to redeem them so you don’t lose them).
  2. If you have another card from the same issuer, ask to transfer the old card’s credit limit to the card you’re keeping (therefore maintaining the same amount of total available credit).
  3. To prevent or minimize any increase in your credit utilization ratio, ask for credit limit increases on any cards you don’t close — or make additional payments to reduce their balances.
  4. Close your card by calling the number on the back (find customer service department phone numbers here). You can also request a freeze on your card to prevent new charges from being made on it.

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

I wasn’t really benefiting 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 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

Intelligent credit use sometimes — but not often — means closing credit cards that aren’t working for you.

Weigh the pros and cons first. If you decide it’s time to part with a certain piece of plastic, be sure to follow the above steps to minimize any damage to your credit.

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