Will Closing My Credit Card Hurt My Credit Score?


Many consumers believe if they cancel their credit cards they will be lowering their credit score. This is not often the case. There is more to consider when cancelling a credit card than whether you use it or not. And just because you are trying to curb your spending, you might not be doing yourself any favors by cutting some of your credit cards in half.

There can be many reasons that people might want to cancel their credit cards. Whether trying to avoid excessive spending or if fees affiliated with a particular card are too high and causing problems, consumers need to consider all aspects of canceling a card.

If you are in a situation where you are considering canceling one or several of your credit cards, be aware of the following:

Always think about your credit score

Canceling a credit card will affect your credit score, and there is no way to get around that. The biggest reason is that a credit report is a history of a consumer’s use of credit. Therefore, having a long history is beneficial because any new debt you incur will be offset by your entire spending history.

According to Bankrate, credit history makes up 35 percent of a score. Of all the factors impacting a score, this is the largest single piece of the pie. Lenders aren’t just interested in new debt or recent activity, but want to see the overall picture. If a consumer has a big chunk of his or her credit history missing because a card was closed, this doesn’t necessarily bode well for the overall score.

Craig Watts, public affairs manager for FICO, spoke with CreditCards.com about the potential risks of closing old credit cards. He noted that when consumers remove old credit cards, they remove that section of their credit history. If that part of a consumer’s credit report had good credit, then that will be removed as well. Further, Watts said positive credit information weighs heavier than negative information when it comes to older credit.

“Negative data such as late payments and foreclosures need to come off the credit report after seven years, by federal law,” Watts said. On the other hand, “positive credit data can stay on the credit report indefinitely.”

Time is certainly a factor when it comes to establishing a credit score. Just because a consumer is not using that particular card, or is maybe concerned about affiliated fees, that doesn’t mean closing it is a better option. Knowing how the action will impact the overall credit score needs to be considered.

Similarly, if a consumer closes an account with a high credit limit, this could also hurt a score, because it will upset the ratio of available credit to actual debt.

“To close card accounts without impacting one’s credit score, you need to have zero balances on your credit report for all of your active credit cards,” Watts said. “That’s because if you have zero balances, your credit utilization rate is therefore zero, and you can’t raise it – and potentially hurt your score – by closing one or more of the active card accounts.”

There are ways to close cards responsibly

While credit history and debt ratios certainly play a large role in establishing a credit report, lenders understand there are times when old cards are more trouble than they are worth. One of the biggest examples of this is high annual fees or APR rates. Many consumers might be in a position where they have cards that contain such fees, and they don’t even use these cards anymore.

If this is the case, U.S. News and World Report recommended speaking with the credit card provider. While the lender is under no obligation to lower a rate, it is worth having the conversation. If a consumer can retain his or her credit history and reduce a high rate at the same time, this will be beneficial in the long run.

Also, if canceling a card is the final decision a consumer makes, then it should be done correctly. For example, simply cutting the card in two pieces will not do the trick. Phone calls will need to be made the issuer of the card, and proof should be provided for the consumer. It is important to note this action likely won’t take overnight, and consumers might have to be patient until the process is finalized.

Whatever a consumer decides to do, he or she should first speak with a lender. Taking the overall picture into consideration and weighing all financing information is the best way to decide whether closing a card will be beneficial or not.

For more information on whether to remove cards, or how to maintain a healthy credit score, contact us today.