Does Closing a Store Credit Card Hurt?

A store credit card is a financial product issued by a specific retailer, often in partnership with a bank, which allows consumers to make purchases at that particular store or its affiliated brands. These cards function as a form of revolving credit, similar to general-purpose credit cards, enabling users to buy items and pay down the balance over time. Many consumers consider closing these cards, prompting questions about the potential effects on their financial standing. This article explores the various factors involved in deciding whether to close a store credit card.

Impact on Your Credit Score

Closing a store credit card can influence several components of your credit score, as scoring models evaluate various aspects of your credit behavior. One significant factor is credit utilization, which represents the amount of credit you are using compared to your total available credit across all your accounts. When a card is closed, its credit limit is removed from your total available credit. If your outstanding balances on other cards remain the same, this reduction in total available credit can increase your credit utilization ratio, potentially lowering your score. Keeping your credit utilization below 30% is generally recommended to maintain a favorable credit score.

The length of your credit history also plays a role in credit scoring, often accounting for approximately 15% of your score. Closing an older account can shorten the average age of all your credit accounts. However, accounts closed in good standing typically remain on your credit report for up to 10 years and continue to be factored into the average age calculation during that period.

Your credit mix, which refers to the diversity of your credit accounts like installment loans and revolving credit, is another component of your credit score. While having a variety of credit types can be beneficial, closing a single revolving account is unlikely to significantly impact a well-established credit mix, especially if you have other credit cards or loans. Credit mix usually accounts for a smaller portion of your overall score, around 10%. Payment history remains on your credit report regardless of whether an account is open or closed, so closing a card does not erase past payment behavior.

The impact on your credit score from closing a store credit card depends on individual circumstances. For instance, closing a recently opened card with a low limit will likely have less effect than closing an old card with a high limit that significantly contributes to your total available credit. While a temporary dip in score may occur, especially due to changes in credit utilization, the long-term effect can be minimal if other accounts are managed responsibly.

Other Financial Implications

Closing a store credit card can have several practical financial implications. If the card carries an annual fee, closing the account eliminates this recurring expense, leading to direct savings. While many store cards do not have annual fees, some co-branded cards might, with average annual fees for credit cards generally ranging from $94 to $157. Eliminating unnecessary fees can free up funds for other financial goals.

Having an open store credit card, particularly one that offers frequent discounts or promotions, can inadvertently encourage impulse purchases or overspending. Closing such a card can remove this temptation, helping to foster more disciplined spending habits and potentially prevent the accumulation of debt. The average interest rate on store cards can be higher than general credit cards, nearing 31% in some cases, making it important to manage debt on these accounts.

However, closing a card means forfeiting any unredeemed rewards, loyalty points, or unused discounts associated with that specific retailer. Cardholders should redeem any accumulated benefits before initiating a closure to maximize their value. Additionally, closing a card simplifies your financial life by reducing the number of accounts you need to manage and monitor.

If the store credit card has an outstanding balance, pay off the entire amount before closing the account. Closing a card with a balance means interest charges will continue to accrue, and you lose the benefit of the available credit limit contributing to your utilization ratio. Paying down the balance to zero ensures you avoid future interest payments and potential negative marks on your credit report.

Making an Informed Decision

Deciding whether to close a store credit card involves weighing potential benefits against drawbacks. Consider the card’s annual fee, its age, and its credit limit. Assess your usage patterns: Do you frequently use the card, or does it primarily sit dormant? If the card encourages overspending or impulse purchases, closing it could support better financial discipline. Check if you carry a high balance on the card; paying it off before closing is important to avoid continued interest accrual and negative credit implications.

You might consider keeping a store credit card if it is a very old account with a high credit limit and a zero balance, especially if it does not have an annual fee. Such a card contributes positively to your credit history and overall available credit. If you use the card responsibly and pay it off in full each month, it can continue to support a strong credit profile.

Conversely, closing a store credit card might be a suitable option if it has a high annual fee, is rarely used, or consistently tempts you to overspend. It may also be advisable to close cards that were recently opened or have low credit limits, as their impact on your credit score is generally less significant. If you are debt-free on the card and wish to simplify your financial management, closure can be a reasonable step.

When you decide to close a store credit card, take specific steps. Redeem any accumulated rewards or discounts. Pay off any outstanding balance in full. Contact the card issuer directly to formally request the account closure and confirm that the account will be reported as “closed by cardholder” to the credit bureaus. After a few weeks, obtain copies of your credit reports from each of the three major credit bureaus to verify that the account is accurately reported as closed and that there are no remaining balances or errors.