Does Closing a Credit Card Hurt Your Credit?

Perhaps you're ready to part ways with your credit card — maybe you're sick of paying the annual fee or you're ready to stop racking up debt. Whatever the reason, you're probably wondering if closing a credit card hurts your credit.

It’s not always the case, but closing a credit card can affect your credit score and report, especially if you've held onto the card for a long time. We’ll help you understand the consequences and benefits of closing a credit card so you can make the best decision.

How Does Closing a Credit Card Affect Your Credit?

You already know that opening a credit card can affect your credit score — well, so can closing a card. Here are a few ways that can happen.

Increases Your Credit Utilization

Closing a credit card can negatively affect your credit score by reducing your credit utilization, or the percentage of available credit that you’re using. You’ll still have the same amount of debt when you close a credit card, but you’ll also have less available credit — meaning you’re now using a higher percentage of credit than you were before.

Imagine you have a combined $8,000 credit limit across all your credit cards. Closing a card with a $4,000 limit halves your available credit. If you’re carrying a balance of $2,000, your credit utilization will shoot up from 25% (when you had your $8,000 limit) to 50%.

Credit bureaus prefer that people keep their credit utilization under 30%, and many people with high credit scores have credit utilization ratios under 10%.

Average Age of Your Accounts Decreases

Another effect of closing a credit card is it lowers the average age of your credit accounts. The longer you've held onto the credit card you want to close, the more it will lower the age of your accounts.

Can Ultimately Lower Your Credit Score

To understand how closing a credit card can affect your credit score, you first need to understand your credit score and how it’s calculated.

Your credit score is calculated based on information in your credit report, or the record of your credit and how you’ve used it over time. Different credit bureaus calculate your score differently, but most use the same six factors:

Payment History — whether you pay your debts consistently, in full, and on time
Credit Utilization — the percentage of available credit that you’re using
Length of Credit History — how long you’ve had established credit
Credit Mix — the types of secured and unsecured loans you have
New Credit — lots of new lines of credit could make you appear risky to lenders

Since closing a credit card can both increase your credit utilization and decrease the average age of your accounts, it usually lowers your credit score. You’ll need to weigh the drop in your credit score against any possible benefits before you can decide whether closing a credit card is the best step.

Pros and Cons of Closing a Credit Card

Usually, it’s better to keep a credit card account open instead of closing it. However, everyone’s situation is different, and you may find the benefits of closing a card outweigh any negative consequences. Here are a few of the pros and cons of closing a credit card.

Pros of Closing a Credit Card	Cons of Closing a Credit Card
Eliminate high annual fees	Lowers your credit score
Eliminate or replace cards with poor benefits	Lose rewards points and perks
Resist temptation	Makes opening new lines of credit harder
Move up to better cards

Pro: Eliminate High Annual Fees

You might save a lot by closing a credit card with high annual fees, especially if you don’t use the card much anyway. For reference, the average annual fee for credit cards that charge fees is around $110.

Pro: Eliminate or Replace Cards with Poor Benefits

Some rewards credit cards offer better benefits than others. If your card offers rewards you don’t use, then closing the card (or switching to one with benefits you like) could help you use credit more efficiently.

Pro: Resist Temptation

Another pro to closing a credit card is if your card is tempting you to overspend. Your long-term financial health is more important than the temporary dip in your credit history from closing your card.

Pro: Move Up to Better Cards

Most of us start out with basic credit cards, but as our credit score increases, we have access to cards with better interest rates and rewards that may fit our financial situation better. Sometimes it makes sense to close a credit card if you have the option to open a better card, especially if the new card is with the same lender and may not impact your credit score as much.

Con: Lowers Your Credit Score

Closing a credit card usually lowers your credit score. It can be hard to know exactly how much of an impact it will have because so many factors go into calculating a credit score. But if you’ll need your credit score to be strong — maybe you’re applying to move into a new apartment or you’re buying a car — then you may decide leaving the card open is better.

Con: Lose Rewards Points and Perks

You may lose your rewards points and other perks if you close a rewards credit card. If you plan to close a rewards card, time it carefully so you can take advantage of any points or miles you’ve earned.

Con: Makes Opening New Lines of Credit Harder

Whether you’re applying for a credit card, an auto loan, or a mortgage, your credit is important to getting approved and landing great rates. Closing a credit card can lower your credit score, making it more difficult to open new lines of credit and keeping the best interest rates out of your reach.

Reasons to Close Your Credit Card

Closing a credit card isn't a good idea in most cases. There are a few situations when it makes sense, but even in these circumstances there may be better alternatives to closing your account.

Switching From a Secured Credit Card to an Unsecured Card

Perhaps your credit score went up to the point where you can now qualify for an unsecured credit card. Congrats!

But instead of closing your account, consider staying with the same credit card company and simply upgrading from your secured credit card (if that option is available). This is a good alternative to closing a credit card because upgrading to a secured card with the same issuer allows you to keep your account history.

Closing a Credit Card to Avoid Spending Temptation

In many cases, people close their credit card because they can't resist the temptation of spending. It’s best to try to change your spending habits before closing your account. For instance, try only using your card for small purchases.

But if you've tried hiding your credit cards and removing the information from online shopping portals — yet you still find ways to overspend, it might be best to close the card.

Your Card’s Interest Rate or Annual Fee Is Too High

You may consider closing your credit card if its interest rate or annual fee is too high. However, it’s worth calling your card issuer and asking for a lower rate or fee. Oftentimes, card issuers would rather give you a better deal than lose a customer — and you’ll be better off keeping that account history.

Closing a Credit Card After Separation or Divorce

If you experience a major life event such as a separation or divorce, closing a joint credit card prevents your ex from running up charges. If your ex remains as a joint owner, you can still be held liable for any charges, even if you weren't the one making the purchases. It’s better to close joint cards and have each person start new accounts in their own name.

When to Keep Your Credit Card Open

There are times when closing a card is the best option and there are times when it’s important to keep an account open. Here’s when you should keep your credit card open:

When It’s the Oldest Account on Your Credit Report

The average age of your accounts is a major factor in calculating your credit score. Closing your oldest credit card will decrease the average age of your accounts, dropping your score. The impact of this drop won’t be immediate — closed accounts stay on your credit report for 10 years. But since any drop in your credit score can have wide-ranging impacts, it’s important to think about.

When You Only Want to Close Your Card Because You Don’t Use It Often

Unless your card comes with high fees, it’s best to leave an unused card open. The main reason is keeping it open helps keep your credit utilization rate healthy. If you’ve had the card for a while, it will also increase the average age of your credit card accounts. Some issuers will close your card for inactivity, so it’s still a good idea to complete at least one small transaction — you can pay it off the same day — a couple times a year.

When You Don’t Have Many Other Accounts Open

Every line of credit has an outsized impact on your credit score when you only have a few lines of credit open. In this situation, closing a credit card can lower you credit score enough to make it hard to open new lines of credit.

How to Close a Credit Card Correctly

If you've decided you want to close your credit card, here are the steps to do it correctly:

Pay off the balance. If you still owe money on your card, make a plan to pay off your credit card debt so you don't owe money after you've closed it.
Redeem your rewards. Many card issuers' rewards programs expire once your credit card account is closed. Don't let your rewards go to waste. Redeem them all before closing the card.
Contact the credit card issuer. Call them to confirm the balance is at $0 and let them know you want to close your credit card.
Cancel your automatic payments. If you had automatic bill pay set up through your checking account’s online banking (and not within the card’s online account), you’ll need to remove it.
Mail or email a letter. Follow up your request in writing to confirm that the card is closed. The letter should have your full name, address, phone number, and details about the credit card. Don't forget to keep a copy for your own records. The issuer should send you a confirmation letter indicating the account's been closed.
Check your credit reports. Wait around 30 days before checking your credit report to see whether the account has been closed and the balance is showing as $0.
Cut up or shred the card. Doing so prevents others from trying to use it. If you had authorized users, ask them to cut theirs up too. While most cards can’t be recycled because they contain mixed materials, some card issuers will destroy the card for you if you send it back in a prepaid envelope..

The Takeaway

Closing a credit card makes sense in certain situations, but it's crucial that you understand how it can affect your credit score. Before doing so, check your credit report to determine whether closing it will adversely affect your score. It might be worth keeping the account open, even if you have to stick the credit card in a locked drawer for a while.

Does Closing a Credit Card Hurt Your Credit?