At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.
In this article:
You might be tempted to cancel a credit card for many reasons. Maybe you're tired of annual fees or you no longer use the card. Perhaps you want to streamline your finances or eliminate a temptation to overspend.
There are times when canceling a credit card is the right call, but it's a permanent decision that can wind up hurting your credit in several ways. That's especially true if it's an older account in good standing. Before you cancel a card, here's what you need to know about how doing so could affect your credit.
Does Closing a Credit Card Hurt Your Credit?
Your credit score is based on several different factors. Closing a credit card can impact most of them negatively and potentially lower your credit score. In more detail, here are some of the ways it might affect your credit:
Credit Utilization Ratio
When you close a credit card, you lose the available credit limit on that account. This increases your overall credit utilization ratio, or the percentage of your total revolving credit you're using at any given time. The amounts you owe on your credit accounts is the second most important factor in your credit score, and credit card utilization is a primary component.
Once your credit utilization reaches 30%, it starts to have a greater negative impact on your credit scores. In general, the lower the utilization rate, the better, since it shows a greater ability to pay down your debt. To calculate your overall utilization ratio, divide the total of all your credit card balances by the total of all your card limits and multiply by 100 to get a percentage. Do this with the credit card you're considering closing and without it to get a better idea of how closing the card could impact your utilization rate.
Age of Credit
The age of your accounts counts toward 15% of your credit score, with longer payment histories bolstering your credit score. Closing a credit card, especially an old one, may also affect your score later because it can lower the average age of accounts.
This shouldn't cause immediate concern, as accounts closed in good standing stay on your credit report for 10 years and are factored into credit scores for that entire time. Closed accounts that have missed payments associated with them will remain on your credit report for seven years. But it's worth reconsidering if you should let go of an account that's helped your credit history for years.
The diversity of your accounts, or your credit mix, accounts for around 10% of your credit score. Your credit benefits from having different types of accounts, such as using both installment debt (like a car loan, student loan or mortgage) and revolving credit (credit card or line of credit). If this is your only account with revolving credit, closing it can hurt your credit mix.
Your payment track record has the largest influence, counting toward 35% of your credit score. That means whether you pay loans and credit card bills on time makes a huge impact, positively or negatively. The risk of missing a payment can be enough to justify closing an account if you struggle to pay your bill on time.
You may have multiple credit card accounts you struggle to stay on top of, or your credit card tempts you to overspend and results in bills you can't afford to pay on time. Late payments pack enough of a punch to credit scores that closing an account where this is a risk could be worth the temporary ding. If you still owe a balance on the card in question, you'll still have to pay it off, but you won't be able to accrue more debt.
When Should I Keep My Credit Card Open?
There are some times when it may be wise to keep the account open, such as when:
- It's the oldest account on your credit report.
- You don't have any or many other open credit accounts, which can reduce your credit mix and result in a thin credit file, making it harder to qualify for future credit.
- You have high balances on other credit cards and closing this would drastically impact your credit utilization ratio.
When Should I Close My Credit Card?
In some situations, it can make sense to cancel a credit card despite the potential downsides. For example, if:
- The card has a high annual fee and the benefits aren't worth it to you.
- The interest rate on the card is high and you need to carry a balance.
- You struggle to manage your debt load and pay the card on time.
- You find yourself overspending with the card.
- You want to get rid of a bare-bones card in exchange for a card with better rewards or benefits.
How to Close a Credit Card Safely
If you've decided it makes sense to cancel your credit card account, follow these steps to make the process as smooth as possible:
- Plan for repayment. It's best to pay off the card's remaining balance before canceling. If you can't, know that after closing, you'll still have to make monthly payments with interest until the balance is zero. If you have concerns about being able to make these payments, before closing the card, contact your card issuer for assistance with a plan for repayment.
- Use remaining rewards. If it's a rewards credit card, you'll probably lose your rewards once the account is closed. Make sure they're not wasted by redeeming outstanding rewards before you cancel the account.
- Update payments. If your credit card was connected to any automatic payments for bills or services, update your payment info. If you can't remember what accounts use the card you're closing, review a recent statement and switch them over so you don't miss payments.
- Inform authorized users. If you have any authorized users on your credit card account, let them know that you're closing the account and ask them to destroy their card.
- Request closure. Contact your card issuer's customer support and ask to close the account. To protect yourself, request they confirm it with a notice in writing and ask that it be noted that the account was closed at your request.
- Follow up. It's smart to follow up with a short letter to confirm your cancellation in writing (if you don't know where to send it, ask your card issuer). It should include your name, phone number, address, credit card account number and any details about your call with customer service. Note that you want the account closed at your request, and keep a copy on file. It can take a few weeks for your request to be processed, but if you haven't received a confirmation letter within a month, call your credit card issuer to inquire.
- Safely destroy the card. If your card issuer doesn't ask you to return the card, it's ideal to use a shredder that can shred cards. Alternatively, cut up the card thoroughly, and consider putting pieces of it in different trash bags around your home, making it harder for fraudsters to find and piece together your credit card information.
Alternatives to Canceling a Credit Card
If you're keeping your card around to help your credit, there are a few ways to remedy the issues that led you to consider canceling.
- Fight fees: For credit cards with burdensome annual fees, call your issuer and ask if they would consider lowering or waiving the annual fee for a year. Some will do this to retain customers.
- Reduce temptation: If you're worried you'll overspend or accrue more debt if you keep the card, stash it somewhere secure like in a safe (or even in a block of ice in the freezer) and don't save the card number when online shopping. If you're really struggling to resist temptation, some issuers will let you pause your credit card account, meaning it can't be used by anyone, but it isn't closed. Call your issuer to inquire if it's an option.
- Set it and forget it: If you want to cancel the card because you rarely use it, know that some issuers automatically cancel cards that have no spending activity for a certain period of time, such as one year. Keep it active by charging one small purchase on it annually or putting a small recurring monthly charge like a streaming service on it. Just don't forget about it, and always pay it off immediately to avoid paying interest.
- Swap cards: Ask your issuer if it's possible to switch to a different card with them, called a product switch. In some cases, issuers will let you move to a different type of credit card while keeping your account history intact. This is especially helpful if your current card has a high annual fee you can no longer afford.
The Bottom Line
Once you close a credit card, it can rarely be reversed, so it's not a decision to take lightly. It can make sense in certain circumstances, as long as you're aware of potential impacts to your credit score.
After closing your account, monitor your credit report and score to see how it affects your score. If you've taken a hit and you need your credit to be in tip-top shape, you'll know it's time to ramp up your efforts to improve your credit.