Is closing a credit card bad?

If you’re like most Americans, you have around four credit cards in your wallet. Closing a card you no longer want or need isn’t necessarily bad, but the decision may affect your credit score in some cases.

Before canceling your credit card, know how closing a credit card can hurt your credit. You should also know when it makes sense to do it anyway and how to minimize the impact on your credit score.

How closing a credit card can hurt your credit

Closing a credit card account can negatively impact your credit, though how much it hurts your score depends on your credit history. Factors like how many other accounts you have open, how long you’ve had the accounts and the balances can all play a role.

Closing a credit card can increase your credit utilization ratio

Your credit utilization ratio — the percentage of your available revolving credit that you’re using — is one of the most important factors in credit scoring models. It shows how well you’re managing debt. The general rule of thumb is to keep your credit utilization ratio below 30%.

Since closing a credit card reduces the amount of credit available to you, it can increase your credit utilization ratio. For example, imagine you have three credit cards with the following balances:

• Card 1: $6,000 balance / $10,000 credit limit
• Card 2: $1,000 balance / $3,000 credit limit
• Card 3: $0 balance / $12,000 credit limit

You’ve borrowed $7,000 out of $25,000 in available credit, meaning your utilization ratio is 28%. If you cancel card 3 because you’re not using it, your available credit will drop to $13,000, leaving you with a utilization ratio of 54%.

Closing your oldest card can reduce the length of your credit history

The length of your credit history is another factor that affects your credit score. It’s determined by the age of your oldest account and the average age of your accounts. A long history of responsible credit use has the potential to improve your score.

If you close your oldest credit card, the length of your credit history will decrease. However, it doesn’t affect your credit score right away. Closed accounts can stay on your credit report for as long as 10 years.

Closing your only credit card can affect your credit mix

Your credit mix refers to the different types of credit accounts you have. That includes revolving accounts, like credit cards, and installment accounts, such as a mortgage or car loan.

Having a variety of account types can help your credit score by showing your ability to manage multiple types of debt responsibly.

Closing a credit card can impact your credit mix, especially if it’s your only credit card account. The impact on your credit may not be significant since credit mix is a relatively minor factor in credit scoring models.

When closing a credit card is a good idea

Despite the potential drawbacks of canceling a credit card, some circumstances make closing your account worthwhile. You may decide it makes sense to close a card in the following situations:

• You consolidated your debt: After opening a balance transfer card, you may close the old account to avoid accruing new debt.
• You have a card with a high annual fee: Some premium credit cards have sky-high annual fees that may not make sense if you rarely use the card or its perks.
• You have a card with a high interest rate. If you need to finance a large purchase, you may want to switch to a lower-interest card.
• You have a joint credit card with your ex: Generally, the only way to remove your name from a joint credit card is to close the account.
• You have a retail credit card for a store you no longer visit: Retail credit cards that can only be used at a specific retailer aren’t much use if you don’t shop there.
• You need to close the account to get a loan: Lenders sometimes tell applicants to close a credit card to meet the eligibility criteria for a mortgage.
• You’re tempted to overspend on the card: Studies suggest consumers spend more when they use credit cards, compared to cash or debit cards.

How to minimize credit impact when closing an account

While closing a credit card can sometimes hurt your credit, there are ways to minimize the potential damage. Here are some strategies to consider.

Switch your recurring payments to another card

Automatic credit card payments are a convenient way to ensure your gym membership, streaming subscriptions or utility bills get paid on time. Before closing a card, remember to switch your recurring payments to another card to avoid missing a payment or making a late payment.

Check your credit report

After you receive confirmation that your account has been canceled, check your credit reports with all three major credit bureaus (Equifax, Experian and TransUnion). Confirm that the credit card is listed as a closed account with the comment “closed at customer request.”

If there’s a mistake, call the credit card issuer to have the error corrected.

Use your other credit accounts responsibly

When you close one of your credit cards, use your remaining credit cards wisely.

Responsible credit card use means maintaining a low utilization ratio by spending within your means and making on-time monthly payments. If you have trouble tracking your card activity, consider setting up balance updates or payment-due reminders.

Alternatives to canceling your card

If you no longer want one of your credit cards but aren’t prepared for the potential hit to your credit score that comes with closing the card, there are other options to consider.

Ask the issuer for better terms

Interest rates and annual fees aren’t always set in stone. Sometimes, it’s possible to negotiate better terms with the credit card issuer. Consider asking your card issuer to match a competitor’s lower interest rate or to waive the card’s annual fee.

Upgrade a secured credit card

Secured credit cards are backed by cash deposits, and they can be helpful for people who are trying to repair their credit. Instead of closing the card once your credit improves, ask your card issuer to upgrade you to an unsecured credit card without closing the account.

Keep the card for small payments

If you have an unused credit card you don’t want to cancel, consider keeping it in your wallet for occasional small purchases, like parking fees. Another option is to set up an automated payment from the card for a recurring monthly bill, like a streaming subscription.

Use other strategies to avoid overspending

Closing a credit card isn’t the only way to stick to your monthly budget. Instead, you might try participating in a no-spend challenge to pause your unnecessary spending or focus on using cash for payments instead of your credit cards.

Some people use card locks to freeze their credit card accounts and prevent themselves from spending money.

The bottom line

Closing a credit card you no longer need or want isn’t necessarily a bad idea, and there are many situations when you might decide that canceling a card makes sense. However, consider how closing a credit card can hurt your credit. If you’re worried about your credit, take steps to minimize the impact of closing the account or explore alternatives to keep the card active.

Frequently asked questions

• Can you close a credit card if you owe a balance?

  Yes, it’s possible to close a credit card with a balance, but you’re still responsible for repaying the money you borrowed.

  Interest continues to accrue on the balance. If the card has an annual fee, you may have to keep paying it until the balance is paid off. The card issuer will send you monthly statements to update you on the closed account’s balance and minimum payment.

• What happens to a credit card if you stop using it?

  If you stop using a credit card completely, the card issuer may close the account due to inactivity.

  The amount of time it takes for a card to be considered inactive varies from issuer to issuer, but it’s usually a year or more. Having a card canceled for inactivity can affect your credit score in the same way as if you closed the account yourself.

• Can you reopen a closed credit card?

  You may be able to reopen your closed account if you change your mind, though that depends on the card issuer’s policies. The issuer may require a new hard credit check to ensure you’re still eligible for the card, which could cause a temporary dip in your credit score.