What Happens When You Close a Credit Card Account?

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

Closing a credit card can negatively impact your credit score by increasing your credit utilization ratio and decreasing your average age of accounts. These are two of the most important factors of your credit score. The impact on your score depends on factors like how much debt you have, how many other credit cards you have and how long you’ve been building a credit history.

Here’s a rundown of what happens to your credit score when you close a credit card:

Your credit utilization ratio increases

Credit utilization is the total amount of debt you’re carrying divided by the amount of credit that’s available to you across your individual credit card accounts, as well as your credit card accounts overall. Credit utilization makes up 30% of your credit score. Closing a credit card decreases your available credit, so your utilization rate would rise if you’re carrying balances on any other cards. Credit scoring experts recommend having a credit utilization ratio of less than 30% to achieve a high credit score.

Let’s take an example where you spend $600 a month across two credit cards:

Your total utilization in this scenario would be 33%:

If you closed Card A and still spent $600 a month on Card B, your utilization would increase to 60%:

Learn more about credit utilization ratio.

Your average length of credit history decreases

The average amount of time you’ve had credit makes up 15% of your credit score. When you close an old credit card, your average length of credit history will decrease. Those who are newer to using credit will suffer more than those who’ve been borrowing and repaying for decades.

For example, if you have a card that was opened 10 years ago and another that was opened five years ago, your average length of credit is 7.5 years.

Closing your oldest card would decrease your average length of credit history to five years.

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).

You could reduce your credit mix

The variety of credit accounts that you have makes up 10% of your overall credit score. Having a diverse range of credit can boost your credit score, because it shows lenders that you can handle several types of loans responsibly. If you only have one credit card, it may be important to keep it open to maintain your credit mix.

For example, let’s say you have a car loan and a credit card. If you close your credit card account, you’re only left with a car loan, which is a type of installment loan. Your credit mix would become less diverse, which could negatively impact your credit.

What happens to rewards when you close a card?

Depending on the card you have, your rewards may be immediately forfeited or may be credited to your account as a statement credit. You should refer to your cardmember agreement, since the terms vary by issuer.

For example, American Express Membership Rewards® points are forfeited immediately when you close an account if you don’t have another American Express® Card or checking account. Discover will credit your account or send you a check with your rewards balance if your account is closed.

If you have a co-branded card with an airline or hotel chain, the points you’ve earned typically will be stored with that brand’s loyalty program rather than managed by your card issuer.

If you close your card, the rewards you’ve earned should still be available through the airline or hotel program and subject to their rewards terms. The only exception may be points and miles that haven’t been transferred to the airline or hotel program yet.

What happens when you close a credit card with a balance?

It’s possible to close a credit card account when you still owe a balance, but there are several important details to keep in mind before you do:

Assuming you keep your payments up-to-date and pay off your closed card over time, the account will still appear favorably on your credit reports and help you build credit over time. But, a closed credit card account can negatively impact you if you fail to make monthly payments or pay your bill after its due date.

What happens when you close a secured credit card?

A secured credit card requires an upfront cash deposit as collateral, in exchange for better approval odds for applicants with low credit scores. With that in mind, you may be wondering if you get your security deposit back when you close a secured credit card.

Fortunately, as long as your account is in good standing and paid off, you’ll get your security deposit back.

For example, closing the Discover it^® Secured Credit Card after paying your balance in full means you’ll get your security deposit back within two billing cycles plus 10 days, according to the card issuer.

Some secured cards might also automatically upgrade you to an unsecured card and refund your deposit if you use your secured responsibly and make enough on-time payments. In that case, you can keep the account open or close it — it’s your choice.

How to decide whether to keep or close a credit card

While keeping a credit card account open is usually the best choice to maintain a good credit score, there are some scenarios where it might make sense to close an account:

Alternatives to closing a credit card

Our recommendation

Open a new card before closing your old one. If you’re still set on getting rid of an old card, consider applying for a new card that will better suit your needs first.

The hard inquiry will knock a few points off your score for a little while, but you’ll get a new credit line that’ll protect your credit utilization ratio. Once you have the new card in your wallet, you can go cancel the old card.