If you’ve ever opened your wallet and wondered how you’ve managed to collect so many credit cards, you might also have asked yourself, “Does closing a credit card hurt my credit score?” The short answer is that closing credit cards will probably lower your score, at least in the short term. However, the lasting effect on your credit score depends on a number of factors. And, closing one or more of your least-used cards, while leaving other cards open, may still be the right decision for your personal finances. Here’s what to consider when you’re thinking of closing a credit card.
How Your Credit Score Is Determined
Your credit score is a number that represents your creditworthiness and is typically impacted by:
- your payment history
- your “credit utilization rate”—the total of all outstanding balances you currently owe compared to your total credit limits
- the length of your credit history and the average age of your accounts
- whether you’ve applied for multiple new credit accounts recently
- your mix of credit (such as credit card accounts and loans)
Why You May Not Want to Close a Card
By closing a credit card account, you could negatively impact factors that affect your credit score. It may not be a good idea if any of the following situations apply:
- You’re getting ready to apply for a loan. Closing an account right before applying to a lender may result in a higher interest rate—or even a rejection.
- It’s one of your oldest accounts. Since the length of your credit history plays an important part in determining your overall score, closing an account you’ve had for many years in good standing will have a bigger impact than closing a new card you’ve only had for a short time.
- You don’t have very many credit accounts. Canceling a credit card could downgrade your credit utilization ratio, meaning that any debts you hold will make up a larger percentage of your available credit. Your score could also be hurt if closing your card leaves you with just a few avenues of credit (for example, if it’s one of only 2 credit cards you have).
When Closing a Credit Card Makes Sense
Closing an extra card may still make sense if:
- You always pay your credit card balance. If you never carry any credit card debt over month to month, your credit score may not be adversely impacted by a closed account. Just keep in mind that your credit card issuer needs time to report your balance as paid to the credit bureaus.
- The account isn’t your oldest. The age of your oldest account may have a significant impact on the evaluation of your credit history. If the account you want to close is a newer one, closing it could have a much smaller impact on your credit score when its history is removed.
- You have too many credit cards. If you feel all those different credit card companies are starting to become unmanageable or if you have a hard time paying them all each month, it may be a good idea to consider closing an account. If you have cards that you don’t use or check often, you could be at risk for identity theft. Decide if keeping them open is worth it.
Other Factors to Think About
Choosing to close a credit card or keep it open isn’t always a simple decision. You have to consider how it may hurt your credit score, but you should also weigh the impact of keeping a card that you don’t really need. If a rewards card has a high annual fee, but you don’t use it enough to get much out of it, that may outweigh the impact of closing it. One place to start is at Annual Credit Report, where you can get a free credit score and a look at your complete credit profile. To learn more about the ins and outs of managing your credit, visit Navy Federal’s Mission: Credit Confidence®.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.