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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 your credit score?” The short answer is that closing a card will probably lower your score, at least in the short term. However, the actual effect on your credit score depends on a number of factors, and closing one or more of your least-used cards may still be the right financial decision for you. Learn what you’ll want to take into consideration when you’re thinking of closing a credit card.

How Is Your Credit Score Determined?

Your credit score is a number that represents your creditworthiness and is determined by weighing:

  • your payment history
  • the amount you owe (this includes the percentage of available credit you use)
  • the length of your credit history
  • whether you’ve applied for multiple new credit accounts recently
  • your mix of credit (such as credit cards and loans)

Why You May Not Want to Close

By closing a credit card, you could negatively impact several of these elements and hurt your credit score. It may not be a good idea to close if any of the following situations apply:

  • You’re getting ready to apply for a loan. Closing an account right before applying for a new line of credit may result in a higher interest rate—or even not being approved at all.
  • 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 will have a bigger impact on your score than closing an account you’ve only had for a short time.
  • You don’t have very many credit accounts. Canceling a credit card could hurt your credit utilization ratio, meaning that any debts you hold will take up a larger percentage of your available credit. Your score could also be penalized if closing your card leaves you with just a few avenues of credit (for example, if it’s only one of two credit cards you own).

Closing a Card May Still Be Right for You

The above factors may not necessarily have a significant impact on your credit score. And, depending on your situation, the benefits may still outweigh the drawbacks. Closing an extra card may still make sense for you if:

  • you have zero debt on your accounts. If you never leave any unpaid amounts on your credit cards to begin with, your credit score won’t face a utilization penalty because of a closed account. Just keep in mind that your credit card issuer needs time to report your balance as paid off to the Credit Bureau.
  • the card account isn’t your oldest. The age of your oldest account has a significant impact on the evaluation of your credit history. If the account you want to close is a newer one, closing it will have a much smaller impact on your credit score when its history is eventually removed.
  • you have too many credit cards. If you feel all your cards are starting to become unmanageable or if you have difficulty paying them off each month, then it may be a good idea to consider closing an account. If you have cards that you don’t use or check often, they could be at risk for fraud. Decide if keeping them open is worth it.

Not Necessarily a Clear-Cut Decision

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 consequences of keeping a card that you may not really need. If it has expensive annual fees and a lack of rewards to make up for it, that may outweigh the impact of closing it. To learn more about the ins and outs of managing your credit, visit Navy Federal’s MakingCents.

This article 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.