How Does Closing a Credit Card Affect Your Credit Score?

For anyone looking to simplify their financial situation or reduce temptation to spend money, closing one or more credit cards might seem like a smart option. However, before you decide on closing a credit card, credit score impact is something you should seriously consider.

How does closing a credit card affect credit score? Learn the details before making the decision to close a card.

How does closing a credit card affect credit scores?

Closing a credit card will often, but not always, cause a decrease in your credit score. When you understand how that decrease happens, it can help you make smart decisions about which cards to keep and which ones to close.

Your credit utilization ratio goes up

Your credit utilization, or the percentage of available credit you’re using, is the second most important factor used to calculate your FICO score. In some cases, closing a credit card can increase your utilization ratio even without taking on new debt.

Here’s a look at how that works. Imagine you have three credit cards:

• Card A: $1,000 credit line, $200 balance
• Card B: $1,500 credit line, $300 balance
• Card C: $1,500 credit line, $0 balance

Right now, you have $500 in debt and $4,000 available credit, so you’re using 12.5% of your available credit. That’s excellent!

Now, imagine that you want to streamline your finances a bit more. You decide to close card C because it has no balance.

Now, you still have $500 in debt, but your available credit has dropped to $2,500. Your utilization is now 20%. 

Even 20% credit utilization isn’t bad, but if you close a credit card with a very high credit limit, your credit utilization could become much more substantial overnight.

Look at another example. Imagine you have three cards:

• Card 1: $3,000 credit line, $1,700 balance
• Card 2: $10,000 credit line, $0 balance
• Card 3: $1,000 credit line, $800 balance

You have $14,000 of available credit and $2,500 total debt, so your credit utilization is about 17.9%.

Because you don’t really use the card with the $10,000 limit, you may be tempted to close it. However, you might want to think twice before you do that!

If you close the $10,000 account, your total available credit will be just $4,000, and your credit utilization will jump to 62.5%. Generally, you should keep your credit utilization less than 30%, so this sudden increase could dramatically lower your score.

Your average age of credit may drop

Credit age is another key consideration. Lenders want to make sure you can manage many kinds of credit over an extended time period, so having a high credit age can be helpful.

When calculating your credit age, lenders often look at the following:

• The average age of all of your accounts
• The age of the oldest account
• The age of the youngest account

If you decide to close a credit card, make sure it’s not the oldest card you have! That can significantly lower the average age of your credit account, which can lower your credit score.

For example, imagine you have five credit cards:

• Card A: 10 years old
• Card B: 15 years old
• Card C: 8 years old
• Card D: 1 year old
• Card E: 1 year old

Currently, the average age of all of your accounts is seven years. If you close card B, your average credit age drops to five years. But if you close card E instead, your average credit age will be 8.5 years.

When it might still make sense to close a card

How does closing a credit card affect credit scores? Now you know that in most cases, closing a card has a negative impact on your credit. However, in some scenarios, it may still make sense to close the card. Here are a few examples:

• Having the available credit causes too much temptation to overspend
• You don’t use the card, it has a low credit limit, and it’s not your oldest account
• You need to simplify your finances (and the card has a low credit limit)
• The card has an annual fee that doesn’t pay for itself

Before you close any credit card account, take some time to consider the pros and cons. If you aren’t sure what to do, it doesn’t hurt to ask for help.

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