Closing Credit Cards: Will Your Credit Score Decrease

Thinking of closing your credit card? Hold that thought for a minute. Will my credit score drop if I close my credit account, let’s talk about it.

Closing your credit card could decrease your credit score, so if you’re thinking about cancellation, then read on to learn how to safely do so.

While there are instances where closing the account might be justified, yet it’s wise to reconsider before you proceed.

Generally, it’s preferable to keep your credit card accounts active, even if you don’t use them regularly. With each closed account, your credit utilization can become higher and high credit utilization will decrease your credit score not to mention, your credit age will change.

Still, there are certain legitimate reasons to consider before closing one. But before we delve into how to safely close your credit card and when you should close your account, let’s answer the question “will my credit score drop if I close my credit account”?

How closing a credit account can affect your credit score

When you close a card, it cuts down the total credit you have available, which might lead to a higher usage of your remaining credit (credit utilization). Forbes reports, if you close your oldest credit card, the length of your credit history will drop too.

Deciding to close your credit card account may reduce your credit score, especially if the card has a large credit limit and you have had it for a long time. This action could take points off your score based on how credit scores are measured. If you’re new to using credit or have only a few cards, the effect could be more significant.

This means there’s a smaller difference between what you spend and the credit you have left.

Furthermore, closing your account lowers the average age of all your credit accounts. With a lower score, it might become more challenging to get approved for things like getting a loan, renting an apartment, or even obtaining another credit card, especially if your score is barely meeting up with lenders’ requirements. 

2 main factors that affect your credit score

Canceling cards with high credit limits can be especially harmful to your credit score if you carry balances. One of the main factors that affect your score is your credit utilization ratio, which is the percentage of your total credit limit that you’re using. 

This ratio is calculated for each individual card as well as for all your cards combined. Financial advisors often suggest keeping your overall credit utilization under 30%, with the highest credit scorers typically using less than 10%.

For instance, imagine you have three credit cards with credit limits of $5,000, $5,000, and $10,000, adding up to $20,000. If the total balance you owe on all these cards is $2,000, your credit utilization is 10%.

If you decide to cancel the card with the $10,000 limit, your total available credit drops to $10,000. This makes your $2,000 balance now account for 20% of your credit limit. This increase in credit utilization can negatively impact your credit score.

How to safely close your credit card

If you must close your credit account, make sure to observe these six points:

• Aim to clear all credit card balances, ideally reducing them to zero.
• Redeem any rewards you haven’t used before canceling your credit card.
• Call the card issuer to confirm cancellation and a zero balance.
• Send a certified letter requesting confirmation of account closure and zero balance.
• Check your credit reports 30-45 days later to ensure they reflect the account closure and zero balance.
• Dispute inaccuracies on your credit reports with the credit bureaus.

Reasons you may want to close your credit account

While it’s not always a good idea to close your credit card, there are some cases closing it might actually be beneficial to you:

• You are going through a separation or divorce
• The credit card is causing you to overspend and end up in debt
• The annual fee isn’t matching with the benefits
• You get a notification of an increase in interest rate

When you shouldn’t close your credit account

1. When you have multiple cards: having different credit cards that you use responsibly is better than having just one card.
2. When you have cleared your balance: this is not enough reason to close your card.
3. You hardly use the card: if the card doesn’t come with an annual fee, leaving it open is better for your credit mix and utilization than closing it.
4. You wish to get a different card: finding a new credit card offer that offers more benefits is not enough reason to close your old credit card. You can still go for the new one while retaining your old credit account.

In Summary

You should only close a credit card if there’s a strong reason to do so. Canceling a credit card won’t boost your credit score or erase any negative marks from your credit report.

If you think you must close a credit card, plan the closure carefully. For instance, consider delaying the cancellation if you’re about to apply for new credit. Also, it’s wise to pay off all your credit cards before you close any accounts.

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