If you have credit cards in your wallet that you haven’t touched in a while, you might be tempted to close them. However, you’re probably better off with them open. Closing a credit card won’t always hurt your credit score — but it potentially can, depending on the card.
You can hurt your credit score by closing a credit card if it’s your oldest or only account — or if closing it affects how much of your overall credit you use. There’s usually no benefit to closing a credit card, unless it has an annual fee.
Closing a card impacts two important components of your credit score: the overall age of your accounts and your credit utilization ratio.
When you cancel a credit card, you reduce your available credit. This can drive up your credit utilization ratio if you’re carrying balances on any other credit cards — and a higher credit utilization ratio makes you look like a riskier borrower.
Your credit utilization ratio is measured by the amount you owe on credit cards divided by your credit limit. Your utilization ratio is measured per card, as well as across all your cards. It’s the second most important credit scoring factor, making up 30% of your overall FICO credit score (with payment history carrying the most weight).
Most experts recommend that you keep your credit utilization ratio well below 30%, but closer to 0% is even better.
Here’s a quick illustration of how canceling a card could negatively impact your credit utilization. Let’s say you have three credit cards, two carrying a balance around half of the available credit limit and one carrying no balance:
| Card | Balance | Credit limit | Credit utilization ratio |
|---|---|---|---|
| A | $0 | $1,000 | 0% |
| B | $250 | $500 | 50% |
| C | $800 | $2,000 | 40% |
| Total | $1,050 | $3,500 | 30% |
If you closed the card with the $0 balance, your credit utilization would jump to 42% — well over the recommended ratio of 30%.
| Card | Balance | Credit limit | Credit utilization |
|---|---|---|---|
| B | $250 | $500 | 50% |
| C | $800 | $2,000 | 40% |
| Total | $1,050 | $2,500 | 42% |
Closing a credit card can also negatively impact your credit score by reducing the average age of your accounts. FICO and other credit scoring models consider the length of your credit history when calculating your credit score. The longer you’ve been using credit responsibly, the more creditworthy you are in the eyes of lenders.
The average age of your accounts counts toward 15% of your FICO Score, and it’s calculated by adding together the age of all your accounts by the number of accounts.
Let’s say you closed the card with the longest credit history (card B) from the example above. This would significantly lower the average age of your accounts:
The good news is that closed accounts in good standing stay on your credit reports for 10 years, so the length of your credit history won’t be negatively affected for a decade unless you decide to open a new credit card account (which will then reduce your average age of accounts).
There are ways to ensure that closing a credit card won’t hurt your credit score. If you do these things before shutting your account, your credit score will likely be OK:
How long you’ve been using credit and how much debt you’re carrying will determine any negative impact of closing a credit card. In general, the longer and more varied your credit history is, the less likely you are to feel the impact of a closed credit card.
Consider someone who has a $70,000 credit limit spread across five credit cards. If that person has an average balance of $10,000, they have an overall credit utilization ratio of 14%. Closing a credit card with a $10,000 limit will only increase their utilization ratio to 17%. Such a small increase in credit utilization will have a minimal effect on their credit score.
Conversely, if a person has two credit cards with a combined credit limit of $5,000 and an average balance of $1,500 across both cards, their overall utilization rate is 30%. If they close one card without paying off their balances, losing $2,500 of their original credit limit, that utilization rate will climb to 60%.
| Person A (Long credit history) | Person B (Newer to credit) |
|---|---|
| Balance = $10,000 | Balance = $1,500 |
| Prior credit limit = $70,000 | Prior credit limit = $5,000 |
| Prior credit utilization = 14% | Prior credit utilization = 30% |
| New credit limit = $60,000 | New credit limit = $2,500 |
| New credit utilization = 17% | New credit utilization = 60% |
Keeping old credit cards open and active will help preserve your credit score, but holding onto old cards isn’t always the right choice. For example, you may have a card with a high annual fee that you aren’t using — closing your account could be the best move in this case.
Holding onto credit cards that you don’t use or check on may also pose a security risk. A thief could steal the account details and make charges on the account without your knowledge. Even though you generally aren’t liable for credit card fraud, you’ll still have to spend time reporting and resolving the charges.
Another reason to cancel a credit card is to remove the temptation to overspend and rack up debt. If you’re unable to control your spending on a credit card, closing the account may be a wise move.
Before closing down an old credit card, take these five steps:
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