Does Closing a Credit Card Hurt My Credit Score?

Usually it’s best to pay your credit card statement balance in full every month to avoid interest charges and keep your credit utilization ratio to a minimum. But the ideal isn’t always possible, and sometimes you might want to carry a balance to pay off a purchase over time (if you have a credit card with a 0% intro APR period, for example). In such cases, having a high available credit limit across multiple cards can add the wiggle room you need to carry a balance without increasing your credit utilization too much. 

For example, let’s say you have three credit cards and recently paid off the total balance on one of them. Now you’re wondering whether you should close the account. Here’s a visual example of how closing the paid-off credit card account could affect your credit utilization ratio: 

In the above scenario, your total credit utilization rate is 13%, which is quite low. Generally, the lower your credit utilization ratio, the better it is for your credit score, according to FICO.¹ In fact, keeping it under 10% – and consistently paying bills on time – can benefit your score, says FICO.

Using the same credit card limits and balance as before, you’ll see in the above scenario that closing the paid-off credit card will bring your total credit utilization ratio up to 27%, even if your debt remains the same. Credit utilization ratio is one of the most influential factors when calculating your credit score.

Closing a credit card account could also hurt your score by reducing the average age of all credit accounts on your credit report, which ultimately affects the “length of credit history” portion of your FICO score. The impact is lower than that of your credit utilization ratio, but you will likely still see a dip in your credit score if you close an account that you’ve had open for several years

It’s important to note that even if your credit account has negative information associated with it, like a history of delinquency or missed payments, closing the account won’t benefit your credit score. FICO scores, for example, still factor in payment history on closed accounts.²

FICO never recommends closing a credit card account in an effort to increase your credit score, and suggests that the decision to close an account should be made carefully.³ Whether to close your credit card account is a decision you must make based on your particular situation. Two factors you may want to consider:

• Does the card have an annual fee? If the card has an annual fee – and rewards and benefits you no longer use – you might be tempted to cancel. But that’s not always the best option. Try contacting your credit card issuer to see if you can “downgrade” to a version of the card with no annual fee. If you’re able to, the account will stay on your credit report and you’ll no longer have to pay the annual fee.
  
• Are you tempted to spend? If having more available credit only tempts you to spend, you may be able to eliminate some or all of that temptation by closing the card account.

For a more in-depth analysis of the reasons you might want to keep or cancel your credit card, read “Should You Cancel Unused Credit Cards or Keep Them?”

If you decide you must close a credit card account, the best way to minimize the impact to your credit score is to keep your credit utilization rate to a minimum across all accounts. Lowering your balances will also reduce the amount of interest you’re charged. Better yet, paying off balances in full each month will prevent you from having to pay interest charges altogether. Consistent, on-time payments also reflect well on your credit report and help increase your credit score.

If you’re able to choose which card account to close, try to close the account with the lowest credit limit. That way you won’t shave off a large portion of you total available credit limit, which can help your credit utilization ratio. It can also help to close the newest account, as it’ll have less of an effect on your account history.

The precise impact of closing a credit card depends on your overall credit report. A good rule of thumb is to keep the account open, unless the card tempts you to overspend or you’re wasting money paying an annual fee for a card you don’t use. If you do plan to close the card, being mindful of your credit utilization ratio – and consistently making on-time payments – can help minimize negative effects to your credit score while helping you recover any lost points over time.