Does Closing a Credit Card Hurt My Credit Score?

You’ve paid your remaining credit card balance. Now it’s time to cut the card up to keep you from using it again and to close the account. But should you close your account? Does closing a credit card hurt your credit? Your credit score is based on several factors, and closing a credit card account can have an impact. It’s important to weigh the pros and cons first before canceling a credit card.

Why close a credit card account?

Closing a credit card account may hurt your credit score, but there are cases where it might make sense for you.

For example, if your credit card terms have changed and are no longer favorable for how you use the card, or are costing you money in the long run, it may make sense to close the account.

Or, perhaps, too often you find you’re using your credit card for purchases when you shouldn’t, and you’re living outside your means. In this case, it could be the most responsible thing to close the account. Even though closing an account can impact your credit score, living beyond your means could lead to late or missed payments, and that could hurt your score even worse.

After careful consideration, determine what makes the most sense for you.

Credit score factors that can change when closing credit card accounts

Closing a credit card account will impact some of the factors that make up a credit score, but not others. These are the credit score factors most likely to be impacted when you close a credit card account.

Avoid closing your oldest account
If you must close an account, consider closing new accounts, not your oldest credit card. Length of credit history is one factor used to calculate your credit score. Typically, the longer an account has been open, the better it is for your credit score.

This is especially true if you’re younger and have a less substantial credit history. Closing an account early in your credit history may indicate risk and negatively affect your credit score. Instead, consider canceling cards with high interest rates or annual fees.

Why credit utilization ratio important

When closing a credit card account, consider that it has the potential to negatively affect your credit utilization rate, which is a factor that helps determine your credit score. Your credit utilization ratio is based on the amount of credit you’ve used versus the total amount you have available.

Having more credit available and less credit used is ideal and usually beneficial to your credit score. When you close credit cards, you will end up with less total available credit.

Closing an account could reduce your credit mix

Another credit score factor that could be impacted by closing a credit card account is your mix of credit. Showing you can manage several different types of credit–credit cards, car loans, mortgage, etc.–at the same time can show you’re a responsible borrower and help your credit score. If you close your credit card account and it’s your only credit card, you’ll have one less type of credit in the mix.

How to cancel a credit card

If you’ve decided that canceling a credit card is right for you, it’s best to be thorough and deliberate. After paying your balance in full, get specific account closing instructions from the card issuer’s customer service department. The operators may try to persuade you to keep your credit account open. Be polite, but firm. Confirm with the operator that your account will indeed be closed, then verify the account was actually closed through email and another call, if necessary.

The bottom line is that closing a credit card account could impact your credit score. The key is balancing responsible credit management and the desire to maintain or improve your credit score. Understanding your specific credit situation, including your spending habits, credit utilization ratio, and aspects of your credit score that could be impacted, can help you make the right decision.