Closing a credit card account might seem like a simple financial decision, but it can have far-reaching consequences for your credit score and overall financial health that many cardholders fail to consider before cutting their cards.
At a Glance
- Canceling a credit card can increase your credit utilization ratio, potentially lowering your credit score
- Closing older accounts reduces the average age of your credit history, which negatively impacts your score
- Before canceling, consider alternatives like downgrading to a no-annual-fee version or using the card occasionally for small purchases
- The decision to close a card should be based on your individual financial situation, including annual fees, spending habits, and long-term credit goals
- If you decide to close a card, follow proper steps: pay off balances, remove recurring charges, contact the issuer, and confirm cancellation in writing
How Closing a Credit Card Affects Your Credit Score
When you decide to close a credit card, two critical factors of your credit score are immediately affected: your credit utilization ratio and the length of your credit history. Your credit utilization ratio refers to the percentage of available credit you’re currently using. For instance, if you have three credit cards with combined limits of $10,000 and carry balances totaling $2,000, your utilization ratio is 20%.
Credit scoring models generally favor utilization ratios below 30%, with lower percentages leading to better scores. By closing a card, you reduce your available credit, causing your utilization ratio to increase—even if your spending habits remain unchanged. This sudden shift can trigger a noticeable drop in your credit score, especially if the closed card had a high credit limit or if you carry significant balances on your remaining cards.
The second major impact concerns your credit history length. The age of your credit accounts contributes significantly to your overall score, with older accounts generally viewed more favorably by scoring models. When you close one of your older or oldest credit cards, you’re effectively shortening your credit history in the eyes of credit scoring algorithms. This effect becomes particularly pronounced if the closed account was substantially older than your other accounts. According to credit reporting agencies, closed accounts will eventually fall off your credit report entirely—typically after 7 to 10 years—which can further reduce your average account age down the line.
“Closing a credit card might hurt your credit score because removing a portion of your available credit will cause your credit utilization, a key credit scoring factor, to rise.” NerdWallet
The impact of closing a card can vary widely depending on your personal credit profile. If you have a limited credit history or few credit accounts, the effect will likely be more significant. As NerdWallet explains, “The impact is likely to be greatest if you are relatively new to credit or have few credit accounts, which is called a ‘thin file.'” Those with extensive credit histories featuring numerous accounts maintained over many years might experience only minimal effects. Nevertheless, even for established borrowers, closing a card with a particularly long history or high credit limit can still result in noticeable score reductions.
When It Makes Sense to Keep an Unused Card
Despite the potential drawbacks to your credit score, keeping unused credit cards active can be beneficial in several scenarios. If you’re planning to apply for major financing in the near future, such as a mortgage or auto loan, maintaining your credit cards and the associated score benefits becomes particularly important. Even a modest decrease in your credit score could result in less favorable interest rates or loan terms, potentially costing you thousands of dollars over the life of the loan. Similarly, if you’re in the process of building or rebuilding your credit history, every positive account matters. An unused card with a spotless payment history serves as evidence of your creditworthiness to potential lenders.
Cards without annual fees present little downside to keeping them open. In the absence of maintenance costs, these cards contribute positively to your credit score without requiring financial outlays. Many issuers will eventually close inactive accounts, but maintaining minimal activity is relatively simple: using the card for a small purchase every few months and paying the balance immediately is usually sufficient to keep the account active. Additionally, maintaining access to available credit provides financial flexibility for emergencies or unexpected expenses. While this shouldn’t be viewed as a long-term financial solution, having access to credit can provide peace of mind in uncertain times.
“Having good credit helps ensure you can secure loans, mortgages and credit cards with lower rates and favorable terms.” Bankrate
Some credit cards also offer unique features or benefits that may no longer be available to new applicants. Before closing an account, review whether your card provides valuable perks like no foreign transaction fees, robust purchase protection, or generous rewards in categories that match your spending habits. Even if you’re not actively using these benefits now, future circumstances might make them valuable. For instance, a card with no foreign transaction fees might sit unused until you plan an international trip, at which point it could save you considerable money compared to acquiring a new travel-focused card.
When Closing a Credit Card Makes Sense
Despite the potential credit score impact, there are legitimate reasons to close a credit card account. High annual fees represent one of the most compelling reasons. If the card’s benefits don’t outweigh its cost—especially if you’re not actively using those benefits—paying to maintain the account may be financially counterproductive. Before closing, however, consider calling your card issuer to inquire about downgrading to a no-annual-fee version of the card. This approach preserves your credit line and account history while eliminating the ongoing cost. Many issuers offer product change options that allow you to maintain your account history while switching to a different card product within their portfolio.
Difficulty managing multiple accounts is another valid reason for consolidation. Some individuals find that having numerous credit cards leads to missed payments, confusion about due dates, or challenges tracking spending across multiple platforms. In these cases, simplifying your financial life by reducing the number of accounts may be beneficial for your overall financial health, even if there’s a temporary credit score reduction. The peace of mind and improved financial organization might outweigh the credit score considerations. Similarly, if having access to multiple lines of credit tempts you to overspend or accumulate debt, closing unused accounts can serve as a practical self-imposed limit on your spending capabilities.
Poor customer service experiences can also justify closing an account. If you consistently encounter difficulties when dealing with a particular card issuer—whether related to dispute resolution, account access, or general support—the frustration might outweigh the benefits of keeping the card active. Additionally, life changes such as divorce or separation might necessitate closing joint accounts or accounts where a former partner is an authorized user. In these situations, cleanly separating financial ties often takes precedence over credit score considerations. Finally, store-specific credit cards may lose their relevance if you no longer shop at the retailer, particularly if they offer limited usability elsewhere and carry annual fees or high interest rates.
How to Properly Close a Credit Card Account
If you’ve decided that closing your credit card is the right move, following a proper procedure can help minimize negative consequences and ensure the account is closed correctly. Begin by paying off any outstanding balance on the card. While it’s possible to close accounts with balances, the debt will remain your responsibility, and you’ll need to continue making payments until it’s fully paid.
Some issuers may even raise your interest rate on remaining balances after closure. Next, redeem any accumulated rewards points or cash back. Once the account is closed, unredeemed rewards are typically forfeited, though this varies by issuer. For transferable points programs, consider moving points to airline or hotel partners before account closure.
Review your account for any recurring charges or subscriptions that automatically bill to the card.
Update these with new payment information before closing the account to avoid service interruptions or missed payments. Then contact the card issuer directly to request closure. While many issuers allow this through their website or app, speaking with a representative gives you the opportunity to ask about alternatives like product changes or retention offers. The representative may try to retain your business by offering fee waivers or bonus points—consider these offers carefully before proceeding with closure.
“The “right” number of credit cards varies from one person to the next.” Bankrate
After verbally closing the account, request written confirmation of the closure. This documentation serves as proof if any issues arise later, such as continued billing of annual fees or reporting discrepancies. Follow up by checking your credit reports from all three major bureaus to verify that the account shows as “closed by consumer” rather than “closed by creditor,” as the latter designation could negatively impact your credit. Finally, physically destroy the card once the closure is complete and confirmed. Cut through the chip and magnetic strip, and dispose of the pieces separately to prevent potential fraud. If the card was added to any digital wallets or online shopping profiles, be sure to remove it from those platforms as well.
Alternatives to Canceling Your Credit Card
Before making the final decision to close a credit card, consider several alternatives that might preserve your credit history while addressing your concerns. If annual fees are prompting your desire to close the card, contact the issuer to inquire about a retention offer. Credit card companies often prefer keeping customers to losing them entirely and may waive the annual fee for a year or offer bonus points that offset the cost. Alternatively, ask about downgrading to a no-annual-fee version of the card. Many premium credit cards have no-fee counterparts within the same product family, allowing you to maintain your account history and credit line without the ongoing cost.
For cards you rarely use but want to keep active for credit history purposes, consider setting up a small recurring monthly charge, such as a streaming subscription. Pair this with automatic payments from your checking account to ensure the balance is paid in full each month. This minimal activity is usually sufficient to prevent the issuer from closing the account due to inactivity while requiring virtually no management on your part. Some cardholders also designate specific cards for particular spending categories—perhaps using one card exclusively for gas purchases or online shopping—to maintain activity across multiple accounts while simplifying their tracking system.
“Once you’ve shown you consistently pay on time, some issuers will allow you to “graduate” to an unsecured card with better terms.” NerdWallet
If you’re concerned about security or the temptation to overspend, consider physically securing the card while keeping the account open. Some people freeze their cards in ice blocks, store them in home safes, or cut them up while maintaining the account. This approach prevents impulsive purchases while preserving the credit history benefits. Additionally, most card issuers now offer robust controls through their mobile apps, allowing you to freeze and unfreeze the card instantly, set spending limits, restrict certain transaction types, or receive notifications for all purchases. These tools can help you maintain control over your spending without closing the account entirely.
Making the Final Decision: Keep or Close?
The decision to keep or close a credit card ultimately depends on your individual financial situation, goals, and habits. To make an informed choice, start by analyzing your overall financial picture. Consider your current credit score, the age of the account in question, how closing it would affect your credit utilization ratio, and whether you have any major credit applications planned in the near future. If you’re planning to apply for a mortgage or other significant loan within the next year, maintaining your credit accounts and maximizing your score should generally take priority. If your financial situation is stable and you don’t anticipate needing optimal credit in the near term, the impact of closing an account may be less concerning.
Evaluate the specific card’s benefits against its costs. Annual fees must be weighed against perks like cash back, travel rewards, purchase protection, or other benefits you actually use. A card with a $95 annual fee that earns you $300 in rewards annually represents a net positive, while the same fee on a card you rarely use becomes a financial drain. Similarly, consider whether the card offers unique benefits that would be difficult to replace with another product. Some legacy cards provide grandfathered benefits no longer available to new applicants, making them potentially more valuable to retain despite annual fees or limited use.
“What percent of my available credit am I using?” American Express
Be honest about your personal spending habits and financial discipline. If having multiple credit cards leads to more spending or creates stress in managing your finances, consolidating accounts may provide non-financial benefits that outweigh credit score considerations. Conversely, if you’re disciplined with credit and benefit from having multiple options for different spending categories, maintaining several accounts might serve your financial strategy well. Remember that the “right” number of credit cards varies widely from person to person—typically between two and five cards provides a balance of flexibility and manageability for most consumers, but your optimal number may differ based on your specific needs and habits.
