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In this article:
- How Closing a Credit Card Hurts Your Credit
- How to Decide When to Keep or Close a Credit Card
- Alternatives to Canceling a Credit Card
- How to Close a Credit Card Safely
You might be tempted to cancel a credit card for many reasons. Maybe you're tired of annual fees on a card you rarely use, or you want a card with better rewards. Perhaps you'd like to streamline your finances or eliminate a temptation to overspend.
There are times when canceling a credit card can be the right call. However, closing a credit card can hurt your credit, especially if it's one of your oldest accounts and it's in good standing (meaning you're making payments on time and as agreed). Read on to find out how closing a credit card can impact your credit and how to decide whether closing a card is right for you.
How Closing a Credit Card Hurts Your Credit
Your credit score is calculated based on several different factors. Closing a credit card can impact some of those factors negatively and potentially lower your credit score. In more detail, here are some of the ways closing your account might affect your credit:
Increases Your Credit Utilization Ratio
When you close a credit card, you lose the available credit on that account. This increases your overall credit utilization ratio, or the percentage of your total revolving credit limits you're using at any given time. The amount you owe on your credit accounts is the second most important factor in your credit score, and credit card utilization is a primary component of this.
In general, the lower your utilization rate, the better, since it shows less reliance on debt and a greater ability to pay down balances. Once your credit utilization exceeds 30%, it can start to more negatively impact your credit.
To calculate your overall utilization ratio, divide the total of your credit card balances by the total of your card limits and multiply by 100 to get a percentage. Do this calculation with all cards, including the card you're considering closing, and again without it. This will provide a better sense of how much closing would impact your utilization rate.
Example: Let's say you have two credit cards:
- Card A has a $10,000 balance and $15,000 credit limit.
- Card B has a $2,000 balance and $25,000 credit limit.
With both cards open, you're using $12,000 of $40,000 in total available credit, a credit utilization rate of 30%. But if you pay off and close Card B and are only left with Card A, your credit utilization rate shoots up to 67%, which could hurt your credit.
Learn more >> What Is the Best Credit Utilization Ratio?
Lowers Your Average Age of Accounts
The length of your credit history counts toward 15% of your credit score, with longer accounts and payment histories bolstering your credit score. Closing a credit card, especially one you've had for a long time, may hurt your score later because it means losing your longest-running account and lowering your average age of accounts.
This shouldn't cause immediate concern, as accounts closed in good standing stay on your credit report for 10 years and are factored into credit scores the entire time. Closed accounts with missed payments will remain on your credit report for seven years. But it's worth reconsidering if you should let go of an account that's helped your credit history for years—especially if it's far older than your other existing credit card accounts.
Example: You got a credit card just after college and have kept that account open and in good standing for 15 years. Around five years ago, you got another card. If you rarely use the first card anymore and decide to close it, your account with the longest history drops from 15 years to five years. Also, when you had both cards, your average length of account history was 10 years. If you cancel the oldest one, your average age of accounts decreases to five years.
Learn more >> How Does Length of Credit History Affect Your Credit?
Could Reduce Your Credit Mix
The diversity of your accounts, or your credit mix, accounts for around 10% of your credit score. Your credit benefits from having different types of accounts, specifically installment debt (such as a car loan, student loan or mortgage) and revolving credit (credit cards or lines of credit).
Closing one credit card account likely won't make a big enough dent to hurt your chances of approval with future lenders, especially if you'll still have another form of revolving credit open, but it's worth being mindful of this if you want the highest credit score possible.
Example: Say you have one credit card account, student loans and a car loan. Your credit mix shows you have the ability to manage both installment loans and revolving credit. If you decide you no longer want the temptation of a credit card and cancel it, your credit mix is now less diverse because it only includes installment loans, which could have a minor negative effect on your credit score.
Learn more >> What Is Credit Mix?
How to Decide When to Keep or Close a Credit Card
The decision of whether to close a credit card account or keep it open can be a tricky one; it helps to weigh the risks and rewards. Here are some factors to consider.
| When to Keep a Credit Card Open | When to Close a Credit Card |
|---|---|
| It's your oldest credit card account | Annual fees are very high |
| You have no other credit accounts | Interest rates are too steep to carry a balance |
| Closing it would raise your credit utilization rate | You're tempted to overspend with it |
| The account is in good standing | You want rewards (or better rewards) |
When to Keep a Credit Card Open
While it comes down to your personal preferences and financial situation, there are some times when it may be wise to keep your credit account open. For example, when:
- It's the oldest account on your credit report—especially if it's the oldest by many years—and closing it would drastically reduce your credit length.
- You don't have any or many other open credit accounts, which can reduce your credit mix and result in a thin credit file, potentially making it harder to qualify for future credit.
- You have high balances on other credit cards and closing this one would drastically impact your credit utilization ratio.
- You've kept the account in excellent standing over time, with an on-time repayment history that has helped keep your credit score strong.
When to Close a Credit Card
In some situations, it can be worth canceling a credit card despite the potential downsides. For example, if:
- The card has a high annual fee and the benefits aren't worth the expense to you. However, one way to remedy this is to ask your card issuer to downgrade your card, known as a product change, to a card with no annual fee. More on this below.
- The interest rate on the card is high and you need to carry a balance.
- You struggle to manage your debt load and pay the card on time.
- You find yourself overspending with the card.
- You want to get rid of a bare-bones card in exchange for a card with rewards or richer benefits.
Learn more >> Should You Cancel Your Unused Credit Cards or Keep Them?
Alternatives to Canceling a Credit Card
If you're tempted to keep your card around to help your credit, there are a few ways to remedy the issues that led you to consider canceling.
- Ask for a fee waiver. For credit cards with burdensome annual fees, call your issuer and explain that you're considering canceling, and ask if they would consider lowering or waiving the annual fee for a year. Some will gladly do this to retain customers.
- Downgrade your card. Ask your issuer if it's possible to switch to a different card with them, called a product change. In some cases, issuers will let you move to a different type of credit card while keeping your account history intact. This is especially helpful if your current card has a high annual fee you can no longer afford.
- Add a recurring payment. If you've decided to keep a card that you rarely use, be aware that some issuers automatically cancel cards with no spending activity for a certain time period, such as one year. Keep your account active by setting up a small recurring charge, like a monthly streaming service, for that card. Just don't forget about it, and consider putting payments on autopay or setting reminders so you'll always pay it off immediately and avoid interest.
- Put the card away. If you're worried you'll overspend or rack up more debt if you keep the card open, stash it somewhere secure like in a safe (or even in a block of ice in the freezer). Also, don't save the card number when online shopping. If you're really struggling to resist temptation, some issuers will let you pause your credit card account, which means nobody can use it but the account remains open. Call your issuer to find out if they allow this.
Learn more >> How to Freeze a Credit Card
How to Close a Credit Card Safely
If you've decided it makes sense to cancel your credit card account, follow these steps to make the process as smooth as possible:
- Pay off your balance. It's best to pay off the card's remaining balance before canceling. If you can't, know that after closing, you'll still have to make monthly payments with interest until the balance is zero. If you have concerns about being able to make these payments, before closing the card, contact your card issuer for assistance with a plan for repayment.
- Use or transfer remaining rewards. If you're closing a rewards credit card, you'll likely lose your rewards once the account is closed. Make sure they're not wasted by redeeming outstanding rewards, or transferring them if allowed, before you cancel the account.
- Update recurring payments to a new card. If your credit card was connected to any automatic payments for bills or services, switch those payments to a different account before closing this one to avoid late or missed payments and resulting fees. If you can't remember what accounts are linked to the card you're closing, review a recent statement.
- Contact your issuer to request closure. If you can't close your account online, call your card issuer's customer support and ask to close the account. To protect yourself, request they confirm it with a notice in writing and ask that it be noted that the account was closed at your request.
- Safely destroy the old card. If your card issuer doesn't ask you to return the card, it's ideal to use a shredder that can shred cards. Alternatively, cut up the card thoroughly, and consider putting pieces of it in different trash bags around your home, making it harder for fraudsters to find and piece together your credit card information. If you have any authorized users on your credit card account, let them know that you're closing the account and ask them to destroy their card too.
- Check your credit report. Monitor your credit report after you close the account, both to ensure that your issuer has closed the account and that your credit report indicates it was closed by you and not them. If information is incorrect, you can reach out to the credit card company directly, and you also have the right to file a dispute with the credit bureaus.
Frequently Asked Questions
A closed credit card account will stay on your credit report for seven to 10 years.
If you made all of your card's payments on time, or at least within 30 days of the due date, it will remain on your credit report for up to 10 years. That means even as a closed account, it can continue to help your credit and show prospective creditors your positive track record.
If you had late or missed payments on your card, or the lender had to close the account because you failed to make enough payments, it will remain on your credit report for seven years. While it can have a negative impact on your credit during that time, it lessens over time. Closed delinquent accounts also remain on credit reports for seven years.
If you don't use your credit card, your card issuer may close your account or reduce your credit limit due to inactivity. There isn't a set period of time that triggers issuer action for inactivity. Some card issuers may close your account after it's been inactive for multiple months, while others may take action after a year of dormancy.
On the other hand, note that your credit card issuer cannot charge you a fee for inactivity—charging inactivity fees is illegal.
If you don't monitor your credit card account, you could miss fraudulent transactions on your card. If you rarely use it, consider locking your credit card to prevent new transactions from being approved. Locking your card has no direct impact on your score.
To avoid inactivity on the account, you could set up a recurring charge, such as a streaming bill, to the card before you lock it. Just be sure to enroll in autopay to ensure your credit card bill is paid on time, too
It's possible to reopen a closed credit card, but it depends on the credit card issuer's policies and the reason your account was closed.
If the issuer closed your credit card due to missed payments or other account issues, they may not be willing to reopen the account. If you initiated the credit card account closure yourself or if the account was closed due to inactivity, your issuer may be willing to reinstate the card.
Contact the credit card company's customer service line and explain that you'd like to reopen the old account. Be prepared to discuss why the card was closed and why you'd like to reopen it. The issuer may decide to approve your request, or they may decide to keep the account closed.
The Bottom Line
Once you close a credit card, it can rarely be reversed, so it's not a decision to take lightly. It can make sense to do this in certain circ*mstances, as long as you're aware of potential impacts to your credit score. Consider alternatives to closing your card to see if they may address your concerns.
If you cancel your account, monitor your credit report and score after doing so—not just to ensure your issuer properly closed it, but also to observe how it affects your score. If you've taken a hit and you need your credit to be in tip-top shape, you'll know it's time to ramp up your efforts to improve your credit.
