Does Closing a Credit Card Hurt My Credit Score?
6 Min Read | Published: January 12, 2023
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Closing a credit card account can negatively affect your credit score, but by how much? Put simply, it depends on the bigger picture of your credit report.
At-A-Glance
- Closing a credit card account can affect the average age of accounts on your credit report, as well as your credit utilization ratio.
- The impact of closing a credit card account may be greater if it’s an old account, or if you have a high credit utilization ratio.
- If you need or want to close a credit card account, there are ways to minimize negative effects to your credit score.
There are valid reasons for wanting to close a credit card account. Maybe it’s an unused credit card with a high annual fee, or maybe the rewards offered by the credit card no longer align with your current lifestyle.
But it’s important to understand that, for the most part, there are two key ways that closing a credit card could negatively affect your credit score:
- By reducing your total available credit limit, which can ultimately increase your credit utilization ratio, a factor that makes up 30% of your FICO score.
- By reducing the average age of all accounts on your credit report, especially if it’s an account that has been open and in good standing for years. Average account age is considered in your length of credit history, a factor that makes up 15% of your FICO score.
This article explains what could happen if you were to close a credit card account, ways to help reduce any negative effects, and how to decide whether to close the account or keep it open.
How Closing a Credit Card Account Could Affect Your Credit Utilization Ratio
Usually it’s best to pay your credit card statement balance in full every month to avoid interest charges and keep your credit utilization ratio to a minimum. But the ideal isn’t always possible, and sometimes you might want to carry a balance to pay off a purchase over time (if you have a credit card with a 0% intro APR period, for example). In such cases, having a high available credit limit across multiple cards can add the wiggle room you need to carry a balance without increasing your credit utilization too much.
For example, let’s say you have three credit cards and recently paid off the total balance on one of them. Now you’re wondering whether you should close the account. Here’s a visual example of how closing the paid-off credit card account could affect your credit utilization ratio:
| Credit Card 1 | Credit Card 2 | Credit Card 3 | Total | |
|---|---|---|---|---|
| Credit Limit | $5,000 | $15,000 |
$10,000 | $30,000 |
| Credit Used | $1,000 | $0 |
$3,000 | $4,000 |
| Utilization Ratio | 20% | 0% | 30% | 13% |
In the above scenario, your total credit utilization rate is 13%, which is quite low. Generally, the lower your credit utilization ratio, the better it is for your credit score, according to FICO.1 In fact, keeping it under 10% – and consistently paying bills on time – can benefit your score, says FICO.
| Credit Card 1 | Credit Card 3 | Total | ||
|---|---|---|---|---|
| Credit Limit | $5,000 | $10,000 | $15,000 | |
| Credit Used | $1,000 | $3,000 | $4,000 | |
| Utilization Ratio | 20% | 30% | 27% |
Using the same credit card limits and balance as before, you’ll see in the above scenario that closing the paid-off credit card will bring your total credit utilization ratio up to 27%, even if your debt remains the same. Credit utilization ratio is one of the most influential factors when calculating your credit score.
How Closing a Credit Card Account Can Affect Average Account Age
Closing a credit card account could also hurt your score by reducing the average age of all credit accounts on your credit report, which ultimately affects the “length of credit history” portion of your FICO score. The impact is lower than that of your credit utilization ratio, but you will likely still see a dip in your credit score if you close an account that you’ve had open for several years
It’s important to note that even if your credit account has negative information associated with it, like a history of delinquency or missed payments, closing the account won’t benefit your credit score. FICO scores, for example, still factor in payment history on closed accounts.2
Should I Close or Keep My Unused Credit Card?
FICO never recommends closing a credit card account in an effort to increase your credit score, and suggests that the decision to close an account should be made carefully.3 Whether to close your credit card account is a decision you must make based on your particular situation. Two factors you may want to consider:
- Does the card have an annual fee? If the card has an annual fee – and rewards and benefits you no longer use – you might be tempted to cancel. But that’s not always the best option. Try contacting your credit card issuer to see if you can “downgrade” to a version of the card with no annual fee. If you’re able to, the account will stay on your credit report and you’ll no longer have to pay the annual fee.
- Are you tempted to spend? If having more available credit only tempts you to spend, you may be able to eliminate some or all of that temptation by closing the card account.
For a more in-depth analysis of the reasons you might want to keep or cancel your credit card, read “Should You Cancel Unused Credit Cards or Keep Them?”
How to Close a Credit Card Account with Minimal Impact to Your Credit Score
If you decide you must close a credit card account, the best way to minimize the impact to your credit score is to keep your credit utilization rate to a minimum across all accounts. Lowering your balances will also reduce the amount of interest you’re charged. Better yet, paying off balances in full each month will prevent you from having to pay interest charges altogether. Consistent, on-time payments also reflect well on your credit report and help increase your credit score.
If you’re able to choose which card account to close, try to close the account with the lowest credit limit. That way you won’t shave off a large portion of you total available credit limit, which can help your credit utilization ratio. It can also help to close the newest account, as it’ll have less of an effect on your account history.
The Takeaway
The precise impact of closing a credit card depends on your overall credit report. A good rule of thumb is to keep the account open, unless the card tempts you to overspend or you’re wasting money paying an annual fee for a card you don’t use. If you do plan to close the card, being mindful of your credit utilization ratio – and consistently making on-time payments – can help minimize negative effects to your credit score while helping you recover any lost points over time.
1 “What Should My Credit Utilization Ratio Be?,” myFICO
2 “Will Closing a Credit Card Help My FICO®Score?,” myFICO
3 Ibid.
Michael Grace is a personal finance and technology freelance writer based in New York.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
7 Common Actions that Can Hurt Your Credit Score
Knowing – and avoiding – financial moves that can make your credit score go down is key to helping you build excellent credit and maintaining it over time.
How Long Does a Closed Account Stay on Your Credit Report?
Closed accounts remain visible on your credit report for seven to 10 years, depending on whether they were in poor or good standing when closed.
Should You Close a Credit Card with a Zero Balance?
Learn about the potential trade-offs involved in closing a zero-balance credit card, as it may influence both your credit score and long-term financial health.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
Shop All American Express Credit Cards
