Can I Close a Credit Card Without Hurting My Credit?

Closing a credit card can impact your credit score. Many consumers hesitate to close accounts, even unused ones, due to concerns about negatively affecting their financial standing. This article explores the relationship between closing a credit card and your credit score, providing clarity on how various factors are affected and offering strategies to minimize adverse effects.

Understanding Your Credit Score

A credit score, such as the widely used FICO score, represents your creditworthiness. It is determined by five categories of information found in your credit reports. These categories include payment history, amounts owed, length of credit history, new credit, and credit mix, each carrying a specific weight.

Payment history is the most significant factor, accounting for approximately 35% of your FICO score, reflecting your record of on-time payments. Amounts owed, also known as credit utilization, is the second most important factor, making up around 30% of your score. This measures how much of your available credit you are currently using.

The length of your credit history constitutes about 15% of your FICO score. This factor considers the age of your oldest account, newest account, and the average age of all your accounts. New credit and credit mix each account for roughly 10% of your score.

How Closing a Card Impacts Your Credit

Closing a credit card can influence your credit score by affecting two primary factors: credit utilization and the length of your credit history. When an account is closed, its available credit limit is removed from your total available credit. This reduction can increase your overall credit utilization ratio. For instance, if you have a $1,000 balance on a $10,000 total credit limit (10% utilization) and close a card with a $5,000 limit, your total available credit drops to $5,000. Your $1,000 balance would then represent 20% utilization, potentially lowering your score. Experts recommend keeping credit utilization below 30%.

The length of your credit history can also be impacted, particularly if you close an older account. Closing an old account can reduce the average age of all your credit accounts, which may negatively affect your score over time. Closed accounts with good payment history generally remain on your credit report for up to 10 years, but their contribution to the average age of accounts may diminish over time.

Payment history for the closed account remains on your credit report, continuing to influence your score. If the account had consistent on-time payments, this positive history benefits you. Negative information, such as missed payments, can also remain on your report for up to seven years, regardless of whether the account is open or closed.

Scenarios Where Closing a Card May Be Acceptable

Despite potential credit score implications, closing a credit card can be a reasonable financial decision in specific situations.

High Annual Fees

One common scenario involves cards with high annual fees that no longer provide benefits. If a card charges an annual fee, such as $95 to over $550, and its perks or rewards no longer justify the cost, closing it prevents unnecessary expenses. This is true if the card is rarely used or its benefits do not align with your spending habits.

Excessive Credit Lines

Another situation is when you possess excessive credit lines across numerous accounts. If your total available credit is substantially high, for example, exceeding $50,000, closing one card with a smaller limit, such as $5,000, might have a minimal impact on your overall credit utilization ratio.

Problematic Spending Habits

Individuals struggling with problematic spending habits on a specific card might find closing it a necessary step for financial control. If a particular card consistently leads to overspending or accumulating debt, eliminating that access can prevent further financial strain. A temporary dip in a credit score might be a small price to pay for avoiding significant debt and fostering healthier financial behavior.

Fraud or Security Concerns

Concerns regarding fraud or ongoing security issues can also justify closing a credit card. If a card has been repeatedly compromised, or if the issuer’s security measures prove inadequate, closing the account can protect your financial information.

Actions to Consider Before Closing a Card

Before closing a credit card, several practical steps can help mitigate potential negative effects on your credit.

Pay off the entire balance on the card, ensuring it has a zero balance. This prevents lingering debt.
Redeem any accumulated rewards points or cash back. Many reward programs stipulate that points are forfeited upon account closure.
Update any recurring payments, such as streaming services or utility bills, linked to the card. Changing these automatic payments to a different account prevents missed payments.
Check for any upcoming annual fees. Closing the account before a new annual fee posts can save you from paying for a card you no longer intend to use.
Review your current credit report, which can be obtained for free annually from AnnualCreditReport.com. This helps you understand your current credit profile and assess the impact of closing the card.

Alternatives to Closing a Credit Card

For individuals concerned about the potential impact of closing a credit card on their credit score, several alternatives exist.

Downgrade the Card

One option is to downgrade the card to a version with no annual fee, if available from the same issuer. This “product change” allows you to keep the account open, preserving its age and credit limit, while eliminating the yearly cost.

Occasional Use

Another strategy involves using the card occasionally for small, recurring expenses that are immediately paid off. This keeps the account active and contributes positively to your payment history, demonstrating responsible credit management without accumulating debt. Setting up a small monthly subscription or making a minor purchase can maintain activity.

Sock Drawering

A common practice for older, unused accounts is “sock drawering,” where the card is kept open but stored safely and not used for daily purchases. This approach allows the account to continue contributing to the length of your credit history and your overall available credit, without the risk of overspending.