Does Closing a Credit Card Hurt Your Credit Score?

Ben Allen
credit card

Understandably, it’s scary to mess with something that could hurt your credit, especially if you are unsure as to what kind of consequences might come from it. Closing a credit card is one of those things that makes people wonder “Is this going to hurt my credit?”

The easy answer is that, no, closing a credit card you’ve paid off completely will not hurt your credit score immediately. But, like most things in life, closing a credit card can potentially have long term effects you need to be aware of.

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How Much Does Closing a Credit Card Hurt Your Credit Score?

Depending on your circumstances, closing a credit card could either have very little impact, or a pretty big impact on your credit score. It all depends on your current credit score, your credit history, your credit mix, utilization of credit, and whether you have other active credit cards.

To help you understand how much closing a credit card can affect you, I’ll be showing you two different scenarios. The first is one where closing a credit can really hurt you, the other a instance where it won’t hurt at all.

Imagine you have a poor to fair credit score, or that because of some mistakes, your credit score has dropped significantly. You only have one credit card to your name, and decide to get rid of it. Now, you have one less positive account going onto your credit report because of the cancelled card; you won’t be actively building your credit by making regular payments any longer. This could be devastating if you already have bad credit, because you’ll have bad credit for longer and limited ways to send positive signals to the bureaus. Cancelling your credit card very much hurts your credit score in situations like this.

Now for a different scenario. You have a pretty high credit score, and multiple credit cards and loans you are paying off. Canceling a single credit card will likely have little impact, because there are multiple positive items going on your credit report every month. Here, canceling the card should have very little impact.

Can Closing a Credit Card Hurt Your Credit Utilization Ratio?

Your credit score is made up of many different factors, all pulling from information on your credit report. The largest of these factors are payment histories and credit utilization. It’s important to know what credit utilization is, and how it’s calculated.

Credit utilization looks at how much available credit you can pull from. A good way to figure this out is take all open credit cards and add up your credit card limits. Then, add up your average balances (debts) on those credit cards. It’s suggested that you keep those balances under 30% of your total credit limit.

Now, taking away a credit card could affect your credit utilization, because your total credit limit becomes smaller; the credit card limit is no longer adding to your available credit. Even if your total payments or debts don’t change at all, getting rid of a card means your credit utilization goes up. If that goes over the suggested 30%, you risk hurting your credit score. This is one of the main reasons why it may be better to hang onto old credit cards, even if you don’t use them. It makes it appear that you are being even more responsible with your credit, using only a small portion of what is available to you.

Closing a Credit Card Won’t Stop the Account From Aging

The longer you have credit card accounts open, the better it is for your credit reports. The older your credit history — especially a single line of credit — the more responsible you are in the eyes of credit bureaus, and the higher you score will likely be.

Typically though, FICO doesn’t care if you close a credit card when it comes to the age of the account, even if the credit card issuer reports to them you’ve closed it. The age of the account will continue to grow on your credit report even if it is no longer active. So, closing a credit card is unlikely to have an impact on that aspect of your credit score.

Closing Your Only Credit Card Can Hurt Your Credit Score

It’s important for each and every person to have at least one credit card that they are normally using and paying off every month. That positive payment history is the best method to improving your credit score, along with the available credit giving you a better utilization ratio. Sure, paying off a car loan, small debts, or house payments can accomplish it too, but the idea is that eventually, you’ll pay those off. At that point, you then lose those positive marks on your credit report. Always paying off a credit card in full means constant growth on your credit score.

If you cancel your only credit card, you lose that positive growth and cut back your available credit. That means nothing new might be going up on your report, meaning no growth is happening. If you make a financial mistake and add a negative mark, it could heavily harm your score. Constant positive activity on your report can help balance out mistakes when they happen.

Closing a Credit Card Could Damage Your Credit Mix

Financial diversity is important for a good credit score, meaning you are using your credit in a variety of ways. That includes short-term and long term loans. You want things like car loans, mortgages, and credit cards to all be a part of your life. If you only have one credit card that you cancel, you lose an element of that diversity. But, if you have multiple credit cards, then canceling one likely won’t hurt you in this aspect.

When it comes to canceling a card, it’s important to analyze your current credit situation. If it’s your only card, you should make sure you can get a new card at the same time, or consider keeping your current one. If you are afraid of throwing your credit utilization rate off, request an increase on a different card’s limit or get a new card. Don’t just cancel a card to get rid of it, make sure it’s the best choice for you.

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