Should I Close Accounts After Paying Debts Off?

man and woman couple sitting looking over financial information
Dear Experian,

I am working to pay down my debt. Should I close accounts after paying them off?


Dear SPD,

I'm guessing you are asking about credit cards. If so, the short answer is usually no, you don't need to close the accounts. Paying down or paying off your credit cards is great for credit scores, but closing those accounts will likely cause your credit scores to dip, at least for a little while. This is especially true if you close more than one card.

When you close an account, you lose that account's available credit limit. That means any balances remaining on other credit cards will then account for a higher percentage of your total available credit, which can hurt credit scores.

How Utilization Rate Affects Scores

Your credit utilization ratio, or balance-to-limit ratio, is the second most important factor in your credit scores. You can calculate your overall credit utilization ratio by adding the total of all your credit card balances and dividing them by the total of all your credit limits; multiply by 100 to see your utilization percentage. The lower your utilization rate, the better for credit scores—less than 10% is ideal, and paying your balances in full each month is best. For this reason, leaving your credit card accounts open after you pay them off is usually better for credit scores as their credit limit will continue to factor into your utilization ratio.

Your Scores May Not Be the Only Factor in Your Decision

In some instances, credit scores may not be the determining factor in deciding whether or not to close credit card accounts once they are paid off. For instance, if you have several credit card accounts and the one you just paid off has an annual fee, it may make financial sense for you to close it and avoid paying that fee if you don't plan to use the card anymore. This is best if your other cards carry low or no balances.

And if you've gotten into trouble with credit card debt in the past, you may feel that closing an account or two could help you avoid the temptation to overspend.

The Impact of Closing Credit Card Accounts Isn't Permanent

While closing an account can cause a dip in credit scores, it's usually temporary. If you are planning to apply for credit in the next six months, it's probably best not to close or open any new accounts right now. Any major changes to your credit could cause scores to drop until your credit history stabilizes again.

On the other hand, if you have more than one credit card account and you know you won't be applying for credit anytime soon, that temporary decrease in scores may not be a big concern.

Order Your Free Credit Report and Score

If you are looking for other ways to improve your credit scores, ordering your free credit score from Experian can be beneficial. When you get your Experian score, you'll also receive a list of the risk factors that are currently impacting you the most. Paying close attention to those factors can help you understand how any changes to your credit history are likely to impact you going forward.

In the meantime, here are some steps you can take to improve your credit:

  • Make all payments on time. Your payment history is the most important factor in credit scores, and missing even a single payment can have a big impact on scores.
  • Bring any past-due accounts current. If you have any accounts that are past due, bringing them current is key to improving your credit scores. Pay off any collection accounts or charge-offs.
  • Reduce balances on revolving accounts. Ideally, you should pay credit card balances in full each month.
  • Sign up for Experian Boost®ø. With Experian Boost, you can get credit for your on-time cellphone and utility payments going back up to 24 months.

Thanks for asking.

Jennifer White, Consumer Education Specialist

This question came from a recent Periscope session we hosted.