Key takeaways
- Closing a credit card can increase your credit utilization ratio and reduce the length of your credit history, both of which can negatively impact your credit score
- You might want to keep a credit card if your credit score is at the low end of the good credit range, you're planning on applying for a mortgage soon, you'll lose too much available credit or you don't have a good reason to close the card
- You might want to cancel a credit card if you're unable to use credit responsibly, you're separating from a partner and need to close a joint account, you have a credit card with a high annual fee, you have a store credit card with a store you no longer shop at or you want to transfer a balance to a card with an intro APR offer
If you’re thinking about canceling a credit card, it’s important to know the potential benefits and risks associated with closing a credit account. While closing a credit card can be as simple as contacting your bank and requesting that it closes the card, there are a lot of variables to consider first. You should think about if the card has an outstanding balance, if there are alternatives to closing the account and how closing the card may affect your credit score.
How closing a credit card affects your credit
Closing a credit card account can negatively affect your credit — but it depends on how many other credit accounts you have open and whether or not you use those credit accounts responsibly. Knowing how your credit score works will help you better understand how closing a card might impact your credit.
Closing a credit card can increase your credit utilization ratio
Your credit utilization ratio makes up 30 percent of your FICO credit score. Since your credit utilization ratio is the ratio of your current balances to your available credit, reducing the amount of credit available to you by closing a credit card could cause your credit utilization ratio to go up and your credit score to go down.
Many experts suggest maintaining a credit utilization ratio at or below 30 percent. A high credit utilization ratio raises red flags for lenders because it shows you’re using a high amount of your available credit, which is seen as risky.
Closing your oldest credit card can reduce the length of your credit history
The length of your credit history accounts for 15 percent of your FICO credit score. It’s worth noting that you probably won’t see the effect on your credit score right away, since closed credit accounts still contribute to your FICO credit score until they fall off your credit report — which could be as long as 10 years.
If you continue to use your other credit accounts responsibly by making on-time payments every month, maintaining a low credit utilization ratio and paying off your balances regularly, your credit score probably won’t take much of a hit. If you have a positive credit history, you’ll likely still have a positive credit history even if you close one of your older credit cards.
When it makes sense to keep a credit card
Is closing a credit card going to majorly damage your credit score? Not necessarily, but that doesn’t mean it’s always your best option. Here are several reasons you shouldn’t close a credit card:
- Your credit score is right on the edge of the good credit range, and you don’t want to risk it dropping into the fair credit range.
- You’re planning to apply for a mortgage and you don’t want to risk losing any credit score points.
- The credit card you’re thinking about closing is your oldest credit card and you don’t want to risk shortening the length of your credit history.
- You have a lot of outstanding balances on your credit cards and closing one card will reduce your available credit to the point where it will have a serious negative effect on your credit utilization ratio.
- You don’t have a good reason for closing the credit card — you just don’t use it as often as you use your other cards.
When it makes sense to cancel a credit card
Despite the potential downsides of closing a credit card, there are some very good reasons to close a credit card. Here are several reasons you might want to close a credit card:
- You are having trouble using your credit cards responsibly — maybe you’re missing payments or you’re worried about going into credit card debt that you won’t be able to pay off.
- You are separating from a partner and need to close a joint credit account.
- You have a retail credit card, but you no longer shop at that store.
- You have an airline credit card, but you no longer fly with that airline and you don’t want to pay the credit card’s annual fee.
- You have a premium credit card that charges a high annual fee and the card no longer makes sense with your lifestyle or spending habits.
- The interest rate on the card is too high. Perhaps you need to make a large purchase and carry a balance, or else pay off debt, so you’re interested in switching to a card with a 0 percent intro APR offer.
- You graduated college and you’re ready to get a regular rewards credit card.
The best way to close a credit card
If you’re ready to close a credit card account, it’s important to know the steps involved. Here’s the best way to cancel a credit card:
Pay off (or transfer) your outstanding balance
If you want to close a credit card account with an outstanding balance, you’re out of luck. Closing a credit card with a balance doesn’t actually work because you can’t fully close a credit account if you still owe money to your lender. You’ll have to either pay off your debt or transfer the balance to one of today’s best balance transfer credit cards.
If you are closing a credit card with a $0 balance, you can skip this step. However, wait at least one full statement cycle after your card reaches a $0 balance to ensure that you aren’t forgetting about any final charges or interest that might come due.
Use any remaining rewards
If you are closing a rewards credit card, make sure to redeem any rewards you’ve earned first. Otherwise, the cash back, points or miles you’ve earned are likely to disappear when you close the account.
In some cases, you may be able to transfer your credit card rewards to another card in the same credit card rewards program. If you have two credit cards that earn Chase Ultimate Rewards points, for example, you can transfer your points from the Chase card you’re planning to close to the Chase card you’re planning to keep open.
Contact your credit card issuer
Once you’ve cleared out your balance and your rewards, it’s time to contact your credit card issuer. It’s usually best to call the number on the back of your credit card. When you do, confirm that your current credit card balance is $0 and request to cancel your account. The customer service representative may offer you an incentive to keep the account open — for example, a lower APR or the opportunity to earn bonus rewards. Other representatives may simply pressure you to keep the account open. You can decide whether to accept any incentives you are offered, but don’t let yourself be talked into keeping a credit card that you’d rather cancel.
After you cancel your credit card by speaking with a customer service representative, it’s wise to follow up on your request with a certified letter to your credit card company. Restate your decision to cancel your credit account and request that they send you a letter confirming that your credit card has been canceled and that the account balance was $0 at the time of cancellation.
Alternatively, you may also be able to contact your issuer through your online account in order to submit a cancellation request.
Check your credit reports
Once you receive confirmation that your account has been canceled, review your credit reports with the three major credit bureaus (Equifax, Experian and TransUnion). Confirm that your credit card is no longer listed as active and look for the note “closed at customer request” on your report.
Destroy the credit card
Destroying the credit card will help protect you from identity theft and credit card fraud. It will also help prevent you from accidentally trying to use the canceled credit card to make purchases.
Alternatives to closing a credit card
If you don’t want to use a specific credit card for whatever reason, but you also don’t want to lose the benefits that come with keeping the credit account open, you have other paths forward.
Ask for a product change
If you are unhappy with your credit card, call your credit issuer and request to swap your credit card for another card offered by the same issuer. For example, if you have a credit card with an annual fee, ask if you can downgrade your card to a no-annual-fee version. You might even be able to swap a cash back credit card for a travel rewards card (or vice versa). Or, maybe you’d rather upgrade your credit card to earn more rewards and perks.
Upgrade a secured card
Instead of closing a secured credit card, ask your credit issuer if they can upgrade you to an unsecured credit card. Some issuers upgrade you automatically after you demonstrate responsible credit use for a specific period of time. If your credit issuer is not able to graduate you to an unsecured card, it may be able to tell you what you can do to earn an upgrade in the future.
Keep the card for small regular payments
If you don’t want to swap, upgrade or downgrade your credit card but aren’t currently using it, you can keep the account active without much effort. If you choose to keep the credit card open, put one small recurring charge on it every month (like a Netflix subscription) and set up automatic payments so that your statement balance always gets paid on time. That way, your credit card remains active without much effort on your part.
The bottom line
While there are pros and cons to closing a credit card, only you can decide whether the benefits outweigh the drawbacks. If you are worried about the negative aspects of closing a credit card, such as a temporary drop in your credit score, consider alternatives such as swapping your credit card for another card offered by the same issuer. However, if you close one card and continue to use your remaining credit cards responsibly, your credit history should remain positive.
