People have all sorts of reasons for canceling a credit card. Maybe you’re struggling to control your spending. It could be a joint account, but your relationship didn’t wind up working out. You might just be tired of paying annual fees for perks you never use.
But does closing a credit card hurt your credit score or have an impact? Here’s everything you need to consider before making that call.
How canceling a credit card impacts your credit
So what happens if you close a credit card? Here’s how a newly closed account can shake your credit up.
It lowers your available credit
Your credit utilization ratio — the portion of available credit that you’re currently using — makes up 30% of your credit score. When you close a credit card account, you lose that card’s
credit limit, which can make your credit utilization jump overnight.
For example, say you have two credit cards:
Credit Card A. $5,000 limit, $1,000 balance
Credit Card B. $3,000 limit, $0 balance
That’s a total credit limit of $8,000 and a balance of $1,000, meaning a 12.5% credit utilization ratio. If you cancel Credit Card B, your total available credit drops to $5,000, making your credit utilization jump to 20% — which could lower your score.
It shortens your credit history
Your length of credit history accounts for 15% of your credit score, and closing a card — especially an old one — can shrink your average account age. While closed accounts can stay on your credit report for up to 10 years, they won’t help your credit score as much as open, active credit card accounts.
It affects the account mix on your credit report
When a lender looks at your credit report, they want to see a mix of open, well-managed credit accounts and types, like credit cards, auto loans, and mortgages. Closing a credit card removes an active account from your report, which could make your credit profile look less diverse — especially if you don’t have
many other credit lines.
Credit mix does factor into your credit score, but not as much as the age of your accounts or your credit utilization ratio. Unless the credit card you want to close is one of just a few credit accounts, canceling it probably won’t have much of an impact on your credit score.
When closing a credit card might make sense
While closing a credit card can sometimes hurt your credit score, there are situations where it may actually be the right move. Here are a few times when canceling a card could help more than it hurts:
You’re struggling to control spending. High credit card balances can lead to interest charges, debt stress, and a higher credit utilization ratio. If having access to a credit card makes it too tempting to overspend, closing the account might be good for your financial well-being.
You’re going through a divorce or separation. If you share a joint credit card with a partner you no longer want to be financially tied to, closing it can help prevent headaches — like one person racking up charges the other is still on the hook for.
You’re upgrading from a secured card. Secured credit cards are a great way to build credit. But once you qualify for an unsecured card with better terms, closing the secured credit card might be the logical next step.
How to close a credit card (safely)
So you’ve decided you should cancel your credit card. Now what? Follow these steps to help avoid unnecessary fees, lost rewards, or nasty credit score surprises.
1. Pay off any remaining balance
Even if you close a credit card account, any remaining debt stays active, and you’ll still be responsible for making payments. Plus, having a lingering balance on a closed account can hurt your credit utilization ratio. Before closing your credit card, make sure you’ve
paid off the balance in full.
If you can’t pay it right now but don’t want to wait to get rid of the card, consider doing a balance transfer to a lower-interest credit card before closing the original card.
2. Redeem any unused rewards
If your credit card earns cashback, travel points, or airline miles, check your rewards balance before closing the account. In many cases, you’ll forfeit any unused rewards once the credit card account is shut down.
3. Update recurring payments
If you’ve set up subscription services, utility bills, or other autopayments on your credit card, update those payment details before you close the account. Forgetting to take this important step could cause missed payments, which could then trigger late fees — and if it takes you too long to catch on, you may lose access to the services you previously used your credit card to pay for.
4. Request written confirmation of the closure
Once your credit card balance is paid off and you’ve redeemed any rewards, it’s time to formally close the account. Some credit card issuers require a phone call, but others allow you to cancel online, via secure message, or through a mobile app. No matter how you do it, ask for a written confirmation that the credit card account was closed in good standing to protect yourself in case of future billing errors.
5. Monitor your credit report for accuracy
Any credit card account that you’ve requested to cancel should eventually show up on your credit report as “closed by consumer.” Keep an eye on your report, and if you notice an incorrect balance or a note that the credit card issuer closed the account instead of you, dispute that information with the credit bureaus.
Alternatives to closing a credit card
It’s impossible to say whether it’s bad to cancel a credit card without considering each cardholder’s unique circumstances. But if you think the potential downsides mean it’s not the smartest play for you, these alternatives to account closure are worth considering.
Ask the credit card issuer to waive or reduce fees
If a high annual fee is the main reason you’re canceling, try calling your credit card issuer and asking for a fee waiver or reduction. Some lenders will offer a statement credit, downgrade options, or bonus rewards to keep you as a customer. You’ll never know if you don’t ask.
Downgrade to a no-fee credit card
Many premium credit cards have lower-tier, no-annual-fee versions. If you don’t need the cashback or travel perks but still want to keep the credit line open, ask your credit card issuer if you can downgrade instead of canceling.
Use your credit card for small, recurring purchases
If you’re worried about the credit account being closed due to inactivity, keep it open by setting up a small, recurring charge, like a streaming subscription or a utility bill. Then, set up automatic payments so you don’t ever have to worry about missing a due date. If your card does get closed by the lender, all hope isn’t necessarily lost — you may be able to have customer service
reopen the account.
Make the credit card inconvenient to use
If you have a habit of overspending but think you can get it under control without either closing the credit card or enrolling in a
debt forgiveness program, try removing it from your physical and digital wallets. Store the credit card in a safe place that requires effort to get to. Some people even freeze their card in a block of ice to make accessing it time-consuming and inconvenient.
Take control of your credit health with EarnIn
Remember that tip we gave you about monitoring your credit report? EarnIn’s
Credit Monitoring tool makes it easy to keep tabs on your credit score
any time, for free. With EarnIn, you can make sure your closed accounts show up as they should. And since you’ll have eyes on your credit utilization, account history, and other factors that play a role in your credit score, you’ll be empowered to make decisions that help monitor
your score and support your financial goals.
Download EarnIn to start
building the credit score of your dreams.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
EarnIn is a financial technology company, not a bank. Banking services are provided by our bank partners on certain products other than Cash Out. Calculated on the VantageScore® 3.0 model. Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don’t be surprised if your lender uses a score that’s different from your VantageScore 3.0.
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