If you’re thinking about cleaning up your credit report by closing a credit card account you haven’t used for years, you might want to reconsider. Closing a credit card account can actually lower your credit score. How? It could potentially reduce the length of your credit history, especially if you’ve had the account for a long time, and it can reduce your available credit. Let’s break it down further.

In This Piece:

• How Does Closing a Credit Card Hurt Your Credit Score?
• Is It Better to Cancel Unused Cards or Keep Them?
• What Happens to Your Credit When You Close a Card?
• How Do I Close a Credit Card?
• Monitor Your Other Lines of Credit

How Does Closing a Credit Card Hurt Your Credit Score?

Your credit score is made up of several factors, and closing a card can change these enough to harm your score. Here’s a breakdown:

• Length of credit history (15%). The length of your credit history makes up about 15% of your major credit scores, including your FICO credit score. The category assesses how long you’ve had credit and looks at the opening dates on all of your accounts. 
• Credit utilization rate (30%). Your available credit has a direct impact on your credit utilization rate, which is how much debt you owe versus your total available credit limit. Your utilization rate should never exceed 30%. Ideally, you’ll utilize 10% or less of the credit you’re allotted.
• Credit mix (10%). This is what kind of accounts you have, such as a mix of installment loans and revolving accounts.
• Payment history (35%). This accounts for most of your credit score and is determined by how many payments you made on time and how delinquent any late payments were.
• New inquiries (10%). When you apply for new credit or a lender runs a credit check, it hits your credit as a hard inquiry and can impact your score.

So, how does closing a credit card affect these areas? When it comes to payment history, it doesn’t have any effect. However, it can impact all the other factors.

Length of Credit History

Your length of credit history is an average of all of the ages of all of your current—which means open and active—accounts. If you close one of your credit cards, it usually decreases this average age. This is particularly true if it was one of your first cards, such as something like a Kohl’s store credit card. 

Credit Utilization Rate

The amount of revolving credit card limit you are currently using is called your revolving utilization. Let’s say you have a credit card with a $10,000 limit and a $2,000 balance. You are utilizing 20% of your credit line.

To maximize your credit scores, you’ll want your revolving utilization to be as low as possible, with 10% or lower being ideal for most people.

An open credit line with a roomy limit and zero balance will help lower your revolving utilization, especially when you carry balances on other accounts. But closing an empty card takes away some of that open limit. This will raise your credit utilization rate, and if the change is enough, it could lower your credit score significantly.

Credit Mix and New Inquiries

In general, the better your credit mix, the better your credit score. If you only have one revolving account and you close that card, you’ve changed your credit mix considerably. This can hurt your score.

It’s also common for people to close a credit card only to find that they need one or want another one down the line. This means you’ll have to open up a new card, which will be a new hit to your inquiries and can lower your score.

Is It Better to Cancel Unused Cards or Keep Them?

In most cases, it’s better to just keep the card and not use it instead of canceling it. This assumes you’re not using it and can manage it responsibly. However, you’ll also want to factor in any annual fees the card charges. If you find that the fees are more than it’s worth to keep the card open, you may be able to negotiate with the company instead of canceling the card.

What Happens to Your Credit When You Close a Card?

When you close the card, your credit score might take a hit. How much it goes down depends on which of the credit factors it affected and by how much. Credit reporting agencies will be alerted of any closed accounts within a month, but the positive effects of the account can last for 10 years.

How Do I Close a Credit Card?

Once you decide that the hit to your credit scores is worth it—let’s say you have a joint credit card account with your spouse but you’re divorcing—there are a few things you’ll want to keep in mind.

You may be able to close a card with a balance, but you’re still going to have to pay off the purchases—and you’ll want to aim to do so right away since that available credit limit will be gone once the card is closed, even if those charges aren’t. Closing a card with a balance reduces your credit limit to zero but leaves the balance, so it might look like you’ve maxed out the card when in reality you’ve merely closed an account. 

Then, you’ll want to confirm with your issuer that your card doesn’t have a balance before you turn a blind eye toward the account. Be sure to check your account to make sure there are no outstanding charges or fees that could go through and then later show up as missed payments—which can also do big damage to your credit score.

Send a notice to your card issuer explaining that you’re closing your card. You can also call ahead, but having everything in writing is beneficial for both your records and in case of errors. Finally, after you’ve canceled, it’s a good idea to get written confirmation that the account is closed and the balance is zero. You can send a certified letter to your issuer’s customer service department requesting a confirmation letter.

Monitor Your Other Lines of Credit

Additionally, you should be responsible with your remaining lines of credit and focus on using them without affecting your credit utilization rate. By keeping those accounts open and using your credit cards at least once a month, you can build your credit or at least negate any potential score decreases that might come from canceling a card.

Keep an eye on your Credit Report Card, and consider signing up for a service like ExtraCredit® that lets you know where your credit stands at any time.