Does Closing Credit Card Affect Score?

Closing a credit card can indeed impact your credit score, but the extent of that impact depends on several factors. This guide will break down precisely how closing a card affects your credit, whether it's a good idea, and what steps you can take to mitigate any negative consequences.

Understanding Credit Scores and How They Work

Before diving into the specifics of closing credit cards, it's crucial to understand what a credit score is and why it matters. A credit score is a three-digit number, typically ranging from 300 to 850, that lenders use to assess your creditworthiness. It's a snapshot of your financial behavior, indicating how likely you are to repay borrowed money. Higher scores generally translate to better loan terms, lower interest rates, and easier approval for credit, mortgages, and even rental applications.

Several factors contribute to your credit score, and they are weighted differently. The most influential components, according to FICO, the most widely used credit scoring model, include:

• Payment History (35%): This is the most critical factor. Making payments on time, every time, is paramount. Late payments, defaults, and bankruptcies can significantly damage your score.
• Amounts Owed (30%): This refers to your credit utilization ratio, which we'll discuss in detail. It's the amount of credit you're using compared to your total available credit.
• Length of Credit History (15%): The longer you've had credit accounts open and in good standing, the better. This shows lenders a longer track record of responsible credit management.
• Credit Mix (10%): Having a variety of credit types (e.g., credit cards, installment loans like mortgages or auto loans) can be beneficial, demonstrating you can manage different kinds of debt.
• New Credit (10%): Opening multiple new credit accounts in a short period can signal higher risk and may slightly lower your score.

Understanding these components is the first step to managing your credit effectively. Now, let's address the core question: does closing a credit card affect your score? The answer is often yes, but the severity varies.

The Direct Impact: Does Closing Credit Card Affect Score?

The short answer is: yes, closing a credit card can affect your credit score, and often negatively. However, the degree of impact depends on the specific credit card being closed and your overall credit profile. It's not a universal disaster, but it's rarely a neutral event. The primary ways closing a credit card can hurt your score are by reducing your available credit (thus increasing your credit utilization ratio) and by shortening the average age of your credit accounts.

Let's break down these key areas.

How Closing a Card Reduces Available Credit

When you close a credit card, the credit limit on that card is no longer available to you. This means your total available credit across all your credit cards decreases. For example, if you have three credit cards with limits of $5,000, $10,000, and $15,000, your total available credit is $30,000. If you close the card with the $15,000 limit, your total available credit drops to $15,000.

This reduction in available credit directly impacts your credit utilization ratio.

How Closing a Card Shortens Credit History

The length of your credit history is a significant factor in your credit score. It reflects how long you've been managing credit responsibly. When you close an account, especially an older one, you reduce the average age of your open accounts. For instance, if your oldest card is 10 years old and you have a newer card that's 2 years old, your average credit history is 6 years. If you close the 10-year-old card, your average credit history immediately drops to 2 years, which can be a substantial blow to your score.

Furthermore, closing an account can also mean losing the positive payment history associated with that card. While the payment history remains on your credit report for seven years (or ten for bankruptcies), the account itself is no longer considered "open and active" for scoring purposes, which can diminish its positive influence over time.

Impact on Different Scoring Models

It's important to note that different credit scoring models might weigh these factors slightly differently. However, the core principles of credit utilization and credit history length remain universally important across FICO and VantageScore models. While a minor dip might occur with one model, a significant negative change in utilization or history length will likely affect all models.

Credit Utilization Ratio: The Biggest Culprit

The credit utilization ratio (CUR) is arguably the most sensitive factor affected by closing a credit card. It's calculated by dividing the total balance you owe across all your credit cards by your total available credit limit across all your cards.

Formula: CUR = (Total Balances / Total Credit Limits) * 100

For example, if you have two cards:

• Card A: $2,000 balance, $5,000 limit
• Card B: $3,000 balance, $10,000 limit

Your total balance is $5,000, and your total credit limit is $15,000.

Your CUR = ($5,000 / $15,000) * 100 = 33.3%

Now, let's say you decide to close Card A.

• Card B: $3,000 balance, $10,000 limit

Your total balance is now $3,000, but your total credit limit has dropped to $10,000.

Your new CUR = ($3,000 / $10,000) * 100 = 30%

In this scenario, closing Card A *decreased* your CUR because the balance was also removed. However, this is not always the case.

Scenario Where Closing Increases Utilization

Consider this:

• Card A: $0 balance, $5,000 limit
• Card B: $5,000 balance, $10,000 limit

Total balance: $5,000. Total credit limit: $15,000. CUR = 33.3%.

Now, you close Card A (with the $5,000 limit).

• Card B: $5,000 balance, $10,000 limit

Total balance: $5,000. Total credit limit: $10,000.

New CUR = ($5,000 / $10,000) * 100 = 50%

In this second scenario, closing Card A significantly increased your credit utilization ratio from 33.3% to 50%. This is because you lost the $5,000 in available credit, even though your balance remained the same.

Why is a high CUR bad? Lenders view a high CUR as a sign of financial distress, suggesting you might be overextended and at a higher risk of defaulting on payments. Generally, it's recommended to keep your overall credit utilization below 30%, and ideally below 10%, for the best credit scores. A sudden increase in your CUR due to closing a card can lead to a noticeable drop in your credit score.

The Role of Zero-Balance Cards

Closing a credit card with a zero balance and a substantial credit limit is often the most detrimental to your credit utilization ratio. This is because you're removing a large chunk of available credit without reducing your overall debt.

Length of Credit History: The Long Game

Your credit history length is another critical component of your credit score, accounting for about 15% of your FICO score. It's measured in two ways:

• Average Age of Accounts: The average age of all your open credit accounts.
• Age of Oldest Account: The age of your very first credit account.
• Age of Newest Account: The age of your most recently opened account.

When you close a credit card, especially an older one, you directly impact the average age of your accounts. This can make your credit history appear shorter and less established to lenders.

Example:

Suppose you have three credit cards:

• Card 1: Opened 10 years ago (limit $10,000)
• Card 2: Opened 5 years ago (limit $5,000)
• Card 3: Opened 1 year ago (limit $3,000)

Your oldest account is 10 years old. Your average account age is (10 + 5 + 1) / 3 = 5.33 years.

If you close Card 1 (the oldest one):

• Card 2: Opened 5 years ago (limit $5,000)
• Card 3: Opened 1 year ago (limit $3,000)

Your oldest account is now 5 years old. Your average account age is (5 + 1) / 2 = 3 years.

This reduction in the average age of your credit history can lead to a drop in your credit score. Lenders prefer to see a long history of responsible credit management, as it provides more data points to assess your reliability.

Impact of Closing Old Accounts

Older accounts, even if unused, often contribute positively to your credit history length. Keeping them open, even with a zero balance, can help maintain a longer average account age. Closing them effectively "resets" your credit history in a way, making it appear less seasoned.

Loss of Positive Payment History Association

While closed accounts and their payment history remain on your credit report for several years, their direct positive influence on your score diminishes over time as they are no longer active accounts contributing to your current credit picture. If the closed account had a perfect payment record for many years, losing its active contribution can subtly reduce your score.

Types of Credit Accounts and Their Influence

The type of credit card you close can also matter.

Store Credit Cards

These often have lower credit limits and can be among the first credit cards people open. Closing an old store card, especially one with a good payment history, can reduce your average credit history length and your overall available credit. However, if the card has high interest rates or is rarely used, the impact might be less severe than closing a primary, high-limit card.

Rewards Credit Cards

If you're closing a rewards card because of an annual fee you no longer want to pay, the impact depends on its role in your credit profile. If it's an older card that contributes significantly to your credit history length and utilization, closing it could be detrimental. If it's a newer card with a high limit that you rarely use, the impact might be manageable.

Balance Transfer Cards

Closing a balance transfer card might not have an immediate, drastic effect if the balance has been paid off. However, if you still carry a balance, closing it could mean losing a promotional 0% APR period and potentially incurring fees. The impact on your score would then depend on the remaining balance and your overall utilization.

Travel Cards and Their Credit Limits

Travel cards often come with substantial credit limits. Closing one of these can significantly reduce your total available credit, thus increasing your credit utilization ratio. This is particularly true if you have other cards with high balances.

When Closing a Credit Card Might Be Okay (or Even Beneficial)

While closing a credit card often has negative consequences, there are specific situations where it might be a reasonable decision, or even beneficial, provided you take the right precautions.

Avoiding High Annual Fees

If a credit card comes with an annual fee that you no longer feel is justified by the rewards or benefits it offers, closing it can save you money. This is especially true if the card is not a significant contributor to your credit history length or utilization.

Managing Debt Responsibly (and Paying it Off)

If you have a credit card with a high interest rate and a balance that you've finally paid off, you might consider closing it to avoid the temptation of running up debt again or to simplify your financial life. However, as we've seen, this can impact your utilization if the credit limit was high.

Simplifying Financial Management

For some individuals, having too many credit cards can lead to confusion, missed payments, or overspending. Closing a few cards can streamline your finances and make it easier to track your spending and payment due dates.

Cards with Poor Terms or Customer Service

If a credit card has consistently poor customer service, predatory terms, or frequent changes that are unfavorable to you, closing it might be a strategic move to avoid further hassle.

Cards with Low Credit Limits

If a card has a very low credit limit, closing it might have a minimal impact on your overall credit utilization ratio, especially if you have other cards with higher limits.

Example of Low Impact Closing

Imagine you have three cards:

• Card A: $10,000 limit, $2,000 balance (CUR 20%)
• Card B: $5,000 limit, $1,000 balance (CUR 20%)
• Card C: $500 limit, $0 balance (CUR 0%)

Total Balance: $3,000. Total Limit: $15,500. Overall CUR: 19.4%.

If you close Card C (the $500 limit card):

• Card A: $10,000 limit, $2,000 balance (CUR 20%)
• Card B: $5,000 limit, $1,000 balance (CUR 20%)

Total Balance: $3,000. Total Limit: $15,000. Overall CUR: 20%.

In this case, the impact on your credit utilization is negligible. The effect on credit history length would depend on how old Card C is, but if it's a newer card, the impact might be minor.

Strategies to Minimize Negative Impact When Closing a Card

If you've decided to close a credit card, or if you're considering it, there are several proactive steps you can take to lessen the potential damage to your credit score.

Pay Down Balances First

Before closing a card, especially one with a balance, ensure the balance is paid off completely. This prevents you from carrying debt on a card that will no longer be available for future spending, which would negatively impact your utilization.

Don't Close Your Oldest Card (If Possible)

As discussed, the age of your credit history is crucial. Your oldest account plays a significant role in this. Unless there's a compelling reason (like a high annual fee you can't waive), try to keep your oldest credit card open, even if you use it sparingly.

Keep a Small Recurring Charge

To keep an older card active and prevent the issuer from closing it due to inactivity (which has the same effect as you closing it), set up a small, recurring charge, like a streaming service subscription. Ensure you have auto-pay set up to pay the statement balance in full each month to avoid interest. This keeps the account open and contributes to your credit history length.

Understand Your Credit Utilization

Before closing a card, calculate your current credit utilization ratio. If closing the card will push your utilization significantly above 30% (or your target percentage), consider alternative strategies. You might be able to pay down balances on other cards first to compensate for the lost credit limit.

Consider Downgrading Instead

Many credit card issuers allow you to "product change" or downgrade a card to a no-annual-fee version. This allows you to keep the account open, preserving your credit history length and available credit, without paying an annual fee. This is often a better alternative than closing the card outright.

Monitor Your Credit Report

After closing a card, keep a close eye on your credit report and score. This will help you identify any unexpected drops and understand the real-world impact of your decision. You can get free credit reports from AnnualCreditReport.com.

Impact on Credit Score Timeline

The immediate impact of closing a card might be a slight dip. However, credit scores are dynamic. If you maintain good credit habits (on-time payments, low utilization on remaining cards), your score can recover over time. The negative effects of reduced credit history length are more long-term.

Alternatives to Closing a Credit Card

Before you decide to close a credit card, explore these alternatives that can help you achieve your financial goals without negatively impacting your credit score.

Product Change to a No-Annual-Fee Card

This is often the most recommended alternative. Contact the credit card issuer and ask if you can switch to a different card in their lineup that doesn't have an annual fee. This preserves the account's age and credit limit without the cost. For example, if you have a premium travel card with a high annual fee, you might be able to switch to a basic cashback card from the same issuer.

Request a Credit Limit Increase

If your concern is credit utilization, and you have other cards with high balances, you could try requesting a credit limit increase on your other cards. This increases your total available credit, which can lower your utilization ratio without closing any accounts. Be aware that some issuers may perform a hard inquiry for a credit limit increase, which can temporarily affect your score.

Use the Card Sparingly for Small Purchases

If you're worried about a card being closed due to inactivity, simply use it for a small, recurring purchase (like a Netflix subscription) and pay it off in full each month. This keeps the account active and maintains its positive contribution to your credit history.

Negotiate Annual Fee Waiver

For cards with annual fees, especially premium ones, try contacting the issuer to see if they will waive the fee, particularly if you're a long-time customer or have high spending. Sometimes, they will offer to waive it for a year or provide bonus rewards to retain your business.

Transfer Balance to a 0% APR Card

If you're closing a card due to high interest rates on a balance, consider transferring that balance to a new 0% introductory APR balance transfer card. This allows you to pay down the debt without accruing interest, and you can then close the original high-interest card once the balance is paid off.

Real-World Scenarios and Examples

Let's look at a few hypothetical situations to illustrate the impact of closing credit cards.

Scenario 1: The Student Card

Profile: Sarah opened her first credit card in college, a student card with a $1,000 limit. She used it for small purchases and paid it off diligently for five years. Now, she has other cards with higher limits and better rewards. She wants to close the student card to simplify her wallet.

Credit Profile Before Closing:

• Student Card: 5 years old, $1,000 limit, $0 balance.
• Main Rewards Card: 2 years old, $10,000 limit, $2,000 balance.
• Travel Card: 1 year old, $5,000 limit, $500 balance.

Total Balance: $2,500. Total Credit Limit: $16,000. Overall Utilization: 15.6%. Average Account Age: 2.67 years.

Credit Profile After Closing Student Card:

• Main Rewards Card: 2 years old, $10,000 limit, $2,000 balance.
• Travel Card: 1 year old, $5,000 limit, $500 balance.

Total Balance: $2,500. Total Credit Limit: $15,000. Overall Utilization: 16.7%. Average Account Age: 1.5 years.

Impact: Sarah's utilization increases slightly, and her average account age drops significantly. This could lead to a moderate decrease in her credit score, primarily due to the shortened credit history.

Scenario 2: The High-Fee Card

Profile: John has a premium travel card with a $500 annual fee. He used to travel frequently, but his travel has decreased, and he no longer finds the benefits worth the cost. The card has a $20,000 limit and a $0 balance.

Credit Profile Before Closing:

• Premium Travel Card: 7 years old, $20,000 limit, $0 balance.
• Mortgage: 10 years old, $200,000 balance.
• Auto Loan: 3 years old, $15,000 balance.
• Cash Back Card: 4 years old, $8,000 limit, $1,000 balance.

Total Credit Card Balance: $1,000. Total Credit Card Limit: $28,000. Credit Card Utilization: 3.6%. Average Credit Card Age: 5.5 years. (Note: Mortgages and auto loans are installment loans and impact credit differently than revolving credit).

Credit Profile After Closing Premium Travel Card:

• Mortgage: 10 years old, $200,000 balance.
• Auto Loan: 3 years old, $15,000 balance.
• Cash Back Card: 4 years old, $8,000 limit, $1,000 balance.

Total Credit Card Balance: $1,000. Total Credit Card Limit: $8,000. Credit Card Utilization: 12.5%. Average Credit Card Age: 3.5 years.

Impact: John's credit card utilization increases significantly, and his average credit card age decreases. This is a substantial negative impact.

Alternative for John: Instead of closing, John could call the issuer and ask to product change to a no-annual-fee card, like a basic cashback card. This would preserve his credit history and limit, avoiding the negative score impact.

Scenario 3: Managing Multiple Cards

Profile: Maria has five credit cards. She finds it difficult to keep track of due dates and wants to reduce the number of accounts she manages.

Credit Profile Before Closing:

• Card A: 10 years old, $15,000 limit, $5,000 balance.
• Card B: 8 years old, $10,000 limit, $3,000 balance.
• Card C: 5 years old, $7,000 limit, $0 balance.
• Card D: 3 years old, $5,000 limit, $2,000 balance.
• Card E: 1 year old, $3,000 limit, $1,000 balance.

Total Balance: $11,000. Total Credit Limit: $40,000. Overall Utilization: 27.5%. Average Account Age: 6.2 years.

Maria decides to close Card E (the newest, smallest limit card).

Credit Profile After Closing Card E:

• Card A: 10 years old, $15,000 limit, $5,000 balance.
• Card B: 8 years old, $10,000 limit, $3,000 balance.
• Card C: 5 years old, $7,000 limit, $0 balance.
• Card D: 3 years old, $5,000 limit, $2,000 balance.

Total Balance: $10,000. Total Credit Limit: $37,000. Overall Utilization: 27.0%. Average Account Age: 6.5 years.

Impact: In this case, closing the youngest card with a relatively small limit and a balance actually *improved* her overall utilization slightly and *increased* her average account age. This is because the balance was removed from the calculation, and the remaining accounts' ages now have a higher weight. This is a good example of when closing a card might have a neutral or even slightly positive effect.

Conclusion: Making Informed Decisions About Your Credit Cards

The question "Does closing credit card affect score?" is a complex one, with the answer invariably being "yes, but..." The impact hinges on which card you close, its age, its credit limit, and your overall credit utilization. Closing a credit card can lower your available credit, thus increasing your credit utilization ratio, and it can shorten the average age of your credit history, both of which are detrimental to your credit score.

However, not all closures are created equal. Closing a card with a high annual fee that you no longer use, or a card with a small credit limit and no balance, might have a minimal negative impact, especially if you implement strategies to mitigate the damage.

The most prudent approach is to first understand your current credit profile and the role each card plays. Before closing any account, consider alternatives like product changing to a no-annual-fee card, which preserves your credit history and available credit without incurring costs. If you must close a card, pay off any balances first and monitor your credit report closely afterward. By making informed decisions and employing smart strategies, you can navigate the world of credit cards while safeguarding your financial future and credit score.