Credit card cut

Managing your finances often involves making hard decisions with long-standing repercussions. One of these decisions would involve calling your credit company and closing your credit card account for good.

But, of course, closing a credit card is not as simple as it seems. You might wonder if the act would have an effect on your overall credit score. The answer? Yes. But whatever effects it would have on your credit score depends greatly on a number of conditions.

With that in mind, it would be best that you weigh in the pros and cons first before you decide to close that account.

Where it Will Hurt You the Most

Let’s get this out of the way first: closing your credit card will ultimately affect your credit score negatively. Keep in mind that your credit score is made up by 5 different aspects: Payment history, credit history, debts, types of credit available, hard enquiries made on the credit account, and your credit utilisation ratio.

As far as closing an account is concerned, the one aspect in your score that will be severely affected would be the credit utilisation ratio. Here’s how it works: your credit utilisation ratio is computed by the amount of credit you have available versus the amount of credit you have used. An ideal ratio, then, would be more credits available than the credits used.

But what if someone suddenly removes a fraction of the credit you have available? The scales would obviously tip into the other side’s favor, causing a severe change in your credit utilisation ratio.

That is exactly what closing a credit card does. By closing a card with a considerable amount of unused credit you suddenly have more credits used than credits available. Ultimately, your overall credit score would experience a drop by several points.

In a Nutshell

So what does this negative effect closing a credit card have on your score imply? Closing a credit card is not exactly the best decision you can make especially if these conditions are present:

  • That credit card still has a lot of available balance
  • Compared to your other credit cards, that card had the most credit available
  • It was the first ever credit card you had opened. This only becomes important after you reach the 10-year mark of being a card holder, though
  • That was the ONLY credit card you had

Also, as weird as this may sound, the way that closing a credit card affects your score implies that maintaining an amount of debt is beneficial to your overall credit score. So as long as the credit you’ve used does not go beyond the credit you currently have, the constant activity in your credit card should have a positive effect on your score. In turn, there should be no reason for you to close that card.

Why Close A Credit Card?

Although closing a credit card will negatively affect your score, there are instances when doing so would ultimately benefit you. For starters, closing a credit card is best if you have the nagging tendency to live well beyond your means. A credit card has often been the temptation for many to start overspending, blatantly disregarding the long-term effects of using more credit than what is available. This is why a lot of credit card holders have poor credit scores and closing that card would be the most responsible move yet that these people can make.

Next, closing a card makes sense if keeping it is no longer a feasible thing to do. Eventually, the terms set by that card would make it harder to maintain in the long run as the costs of keeping it open gets higher every year. This is even more problematic if you don’t use your card that often. After all, why keep spending for something that you use only once to thrice a year?

Keep in mind that neither of these instances would eventually have a positive effect on your score. But then again, having a low score might be far more favorable than being unable to make payments on time.

Closing a Credit Card: What To Do (and Not)

If you really find it necessary to close your credit card but want to mitigate that eventual drop in your credit score, there are several things that you need to do or avoid doing at all. Here are some of them:


Sort Things Out

If you have multiple cards, always make it a point to identify which cards you need and which are mere financial deadweight. If you are not using that card a lot or it requires a lot of money to maintain, it would be best to just close that card.

Fortunately, some companies do allow you to waive some fees or offer you to lower your interest rates if you decide to close that card. As such, it is best that discuss the matter with a company representative before you make the decision final.

Watch Out for Additional Fees

When it comes to credit cards, it is best that you either use them or close them. Do not decide to forget about them entirely as you are still going to pay for it in the end just to keep those cards active. There might even be new charges placed on that account so as long as the balance is active.

If you tend to use your credit a lot, you have the option to close that account to new charges. This will help you prevent yourself from overspending while you are in the process of closing your unused credit cards. The point is to avoid your accounts from being labeled as delinquent as this will also negatively affect your score in another way.

Keep Some Accounts Active

As was stated, the way to maintain a good credit health is to maintain that balance between debts and available credits. With that in mind, you must aim to preserve all the credits cards you have that have a lot of credit available, are not delinquent, and have manageable maintenance fees. This way, you can stave off a sudden drop in your credit score while still maintaining a favorable impression to potential creditors.


Close the Oldest

Unless it itself has become a hassle to maintain as an active account, your oldest credit card should be kept open for as long as possible. The reason for this is that your first credit card often serves as the marker to your entire credit history. Removing it, then, would mean that you are shorting your credit history which would then affect your credit score negatively.

The better option here is to seek for a credit upgrade or downgrade depending on the status of your oldest card. Killing it outright would just hurt you both on the side of your credit history and utilisation rate.

Ignore Lose Threads

Closing unused or delinquent accounts is not as easy as you might think. If you really want to prevent any obligation that you have with those cards from coming back and haunting you in the future, you have to be as thorough as possible.

Make sure to follow every step in closing your account set out by the credit company and, of course, pay off every balance your cards have. If done right, the company would contact you by mail or phone that your card has indeed been closed and all obligations you have for it have been settled.

Close Multiple Accounts At Once

Creditors themselves are looking for suspicious activity on credit card holders and nothing can be more alarming than a widespread closure of your accounts. This often means that you are destroying evidence of your credit history which would cause creditors to become more hesitant with you on future transactions.

Also, the negative effects on your overall credit score tend to be amplified if you do more than one card closure per 2 weeks. If you really have to close multiple accounts, space them evenly within a longer period of time. The more credit cards you have to close, the longer your closure period would be. This way, your credit score does not experience a massive drop once the next report comes up.

In Conclusion

So, does canceling your credit card have a negative effect on your credit score? Yes. Is there a way of avoiding it? No. However, that does not mean you can’t stave off the worst effects it has or, at least, stretch them out over a longer period of time to the point that they become nearly negligible in the long-run.

Also, being vigilant in monitoring all of your credit cards’ statuses, balances, and fees can help you in making important financial decisions that do not eventually pose problems for you in the near future. Plan your credit card closures right and your credit health would remain largely unaffected in the long run.

Have you ever found yourself deciding whether or not to close your credit card? What methods did you use to keep your credit score healthy? Let us know in the comments below.