What Happens If You Close Your Credit Card?

Closing a credit card account may seem like a simple financial decision, perhaps to simplify finances or reduce spending temptation. However, this action carries various implications that extend beyond merely cutting the physical card. Understanding these potential outcomes is important before proceeding with an account closure, as it involves careful consideration of how it might influence your financial standing and future credit opportunities.

Impact on Your Credit Score

Closing a credit card can significantly affect your credit score, primarily by altering your credit utilization ratio. This ratio compares the amount of credit you are currently using to your total available credit across all accounts. When you close a card, your total available credit decreases, which can cause your utilization ratio to rise if you carry balances on other cards.

For example, if you have two cards, each with a $5,000 limit and a $1,000 balance on one, your utilization is 10% ($1,000 used / $10,000 available). If you close the unused card, your available credit drops to $5,000, and your utilization jumps to 20% ($1,000 used / $5,000 available), even without new spending. A higher utilization ratio, especially above 30%, is generally viewed negatively by credit scoring models.

The length of your credit history also plays a part in your credit score, as older accounts generally contribute positively. Closing an older credit card can reduce the average age of your accounts, which might negatively impact your score over time. While the closed account with a positive payment history typically remains on your credit report for up to 10 years, its immediate impact on available credit changes. After this period, the account will eventually fall off your report, potentially shortening your overall credit history.

Closing a credit card may also affect your credit mix, which refers to the diversity of credit types on your report, such as revolving credit (credit cards) and installment loans (mortgages, auto loans). If the credit card is one of your few revolving credit lines, closing it could reduce the variety of your credit portfolio. This factor generally has a smaller impact on your score compared to credit utilization or length of credit history. The exact impact of closing an account varies based on your individual credit profile, including the number of other cards you hold, your overall credit limit, and the age of the account being closed.

Financial Considerations When Closing

Before closing a credit card account, pay any outstanding balances in full. Interest will continue to accrue on unpaid amounts even after closure. This prevents additional finance charges or lingering debt.

Consider annual fees. If your card has one, determine if you are eligible for a pro-rated refund for the current year. You may still be responsible for an upcoming fee if it posts before closure is finalized.

Redeem any unredeemed rewards, such as points, miles, or cash back. Most reward programs state that accumulated rewards are forfeited upon account closure. Redeeming them ensures you do not lose their value.

Practical Steps Before Account Closure

Before contacting your credit card issuer to close an account, several preparatory steps are important to manage the transition effectively. First, ensure the account balance is paid down to zero. Next, redeem any accumulated rewards, such as points, miles, or cash back.

Review your card statements or online account to identify any recurring payments or subscriptions linked to the card. These automatic payments, like streaming services or utility bills, must be updated with a new payment method to avoid service interruptions or late fees.

Consider the age of the card you intend to close, especially if it is your oldest credit account. Closing an old account can eventually reduce the average age of your credit history, which factors into your credit score. Finally, gather all necessary account details, such as the account number and any personal identification information, as these will be required when you formally request closure.

The Account Closure Process

Once preparatory steps are complete, you can formally close the account. The most common method to initiate a closure request is by contacting the credit card issuer’s customer service department directly. This can often be done via a phone call, though some issuers may also offer online chat or written request options.

During this contact, the issuer will typically require specific information to verify your identity, such as your account number, full name, address, and possibly your Social Security Number. You should clearly state your intention to close the account and confirm that the balance is zero. It is advisable to request a written confirmation of the account closure, which can be sent to you via mail or email, for your personal records.

After receiving confirmation, safely destroy the physical credit card by shredding it or cutting through the EMV chip and magnetic stripe. This prevents unauthorized use. Monitor your credit reports in the months following the closure to ensure the account is accurately reported. The credit bureaus should show the account as “closed by consumer” with a zero balance, which confirms the closure has been processed correctly.