Does It Hurt Your Credit to Close a Credit Card? Here's What Happens

When you have a credit card you no longer use, it's natural to wonder if you should get rid of it. You’ll have one less account to keep track of and one less data point an identity thief could use to impersonate you. 

It's less common to wonder about the impacts of closing that card on your credit scores. The fact that you're asking already puts you ahead of the curve. 

The truth is, closing a credit card could hurt your credit score. Despite that possibility, it could still be your best option. We'll explore the pros and cons of closing a credit card to help you decide what makes sense for you.

How Closing a Credit Card Could Hurt Your Credit Score

There are two key ways that closing a credit card could lower your credit score: raising your credit utilization ratio and lowering your average account age.

Raising your credit utilization ratio

Your credit utilization ratio compares the amount of credit you have available to you and the amount you actually use. For example, if you have a credit card with a $10,000 limit and a $2,000 balance, your credit utilization ratio is 20% on that card.

Credit utilization is part of the Amounts Owed factor of your FICO credit score, and that makes up 30% of your score. This means it's the second-most important factor, coming in just after your payment history. This includes your credit utilization ratio per card and overall. 

When you close your credit card, you're losing access to its credit limit. This can result in an increase to your overall credit utilization ratio if you have balances on any of your cards. A credit utilization ratio over 30% is generally considered to be a red flag with lenders as it may signal that you're living beyond your means.

By leaving your credit card open, you'll keep access to that credit line. As long as the card has zero balance, that could help keep your overall credit utilization ratio lower. 

Lowering your average account age

Another important credit scoring factor is Account Age, which looks at the age of your overall credit history as well the average age of all your credit accounts. It's worth up to 15% of your FICO Score.

Accounts you close in good standing stay on your reports up to 10 years. But once you close the credit card, that account stops aging, and it becomes less helpful to your average account age. This could be less impactful if it's a younger account, but closing an older account—especially if it's your oldest account—could hurt your score over time.

This may not cause significant score damage, but you could avoid it entirely by leaving the account open if possible and advisable.

When You Might Want to Close a Credit Card, Even If Your Credit Takes a Hit

In a few situations, closing your credit card could still be the right call, even if your credit score takes a temporary hit.

You're paying a high annual fee

You can find a lot of no-annual-fee credit cards, but cards with big rewards or for people with low credit scores could charge annual fees of $100 or more. Some credit cards, especially high-end travel rewards cards, charge annual fees up to hundreds of dollars. 

If you earn enough in rewards each year to offset the annual fee—and actually use them—the fees might be worth it. When that's not the case, you're often just giving money away. In this case, it could be well worth canceling or downgrading your card in favor of one with no annual fee.

You're tempted to overspend

Carrying credit card debt from month to month can be expensive thanks to high interest rates. If you've had to battle high card balances or seek debt relief, closing your credit card might be the right move. Removing the temptation entirely could be a way to help you reset your spending habits until you can use your card without the risk of overspending.

If your card has a balance, pay it off before you close the account. Balances owed when you close a card could come due right away.

You want one fewer account to manage

Even if you don't use a credit card often, you still need to check up on it every month to make sure that no one else has gotten ahold of it. If you'd rather not have to keep track of old account numbers and login information, you might prefer to close the account altogether.

If You Don't Want to Close Your Card But Are Worried About Overspending

It's understandable if you're worried about overspending on the old card but are hesitant to close it because of the effect on your credit score. In that case, your best option might be to leave the account open, but take steps to make it more difficult to use.

For example, you could lock the card through your online banking account or mobile app. This prevents it from being used to make new purchases. Then, physically lock up the card itself in a cabinet or hide it in the back of your sock drawer. The goal is to make it a pain to get to so you're less likely to pull it out the next time you want to buy something.

Also, remove the credit card as a payment method from all your online shopping accounts. That way, if you want to use it, you'll need to go through the hassle of physically tracking down the card and typing in the number. This can help cut down on impulse buys.

What to Do If You Have Multiple Unused Credit Cards

If you have several credit cards you don't use, evaluate them on a case-by-case basis. It's usually good to have at least one go-to card for purchases and a second card you keep as a backup. This ensures you still have credit available to you, even if your primary credit card's number is stolen or misplaced and you have to wait for a new card.

Beyond that, it's ultimately up to you to decide whether closing the card makes sense. If you're not sure, consider holding onto it for a little while and revisit the question again in a few months.