Last Updated on April 2, 2025 by Amrita Das
Canceling a credit card can seem like a straightforward choice, but the reality is more complex. Whether it’s due to high annual fees, overspending concerns, or simply because you want to simplify your finances, closing a credit card can impact your credit health in ways you might not expect.
This blog explores how canceling a credit card can affect your credit score, the key factors to consider before closing an account, and smart strategies to minimize potential negative impacts. By the end, you’ll have the insights needed to make an informed decision about your finances.
How Closing a Credit Card Hurts Your Credit?
When you close a credit card, three of these critical factors may be negatively affected. Here’s how.
An Increased Credit Utilization Ratio
When you close a credit card account, the available credit on that card is subtracted from your total credit limit. This can immediately increase your credit utilization ratio, one of the most significant factors in determining your credit score.
What is Credit Utilization?
Your credit utilization ratio is the percentage of your total available credit that you’re currently using. For example, if your total credit limit is $10,000 and you carry a $3,000 balance across all your cards, your utilization rate is 30%.
Why It Matters
Lower utilization rates are better for your credit score because they indicate responsible credit use and lower reliance on borrowing. A utilization rate above 30% can signal financial risk, which can lead to a drop in your credit score.
Example of the Impact
Here’s a practical example to illustrate how closing a card could change this ratio:
Card A: $10,000 balance, $15,000 credit limit
Card B: $2,000 balance, $25,000 credit limit
Without closing any cards, your total credit limit is $40,000, and you’re using $12,000 (30% utilization). But if you close Card B, your total credit limit drops to $15,000. With the same $10,000 balance, your utilization skyrockets to 67%! That increase could seriously hurt your credit score.
Pro Tip
Before closing a credit card, calculate how the change will affect your utilization rate. Aim to keep the number below 30% for the best results.
A Shorter Average Age of Accounts
The length of your credit history has a 15% influence on your credit score. Closing a credit card, especially an older one, can reduce the average age of your accounts over time.
Why The Length of Credit Matters
A long credit history demonstrates consistent and responsible borrowing behavior over the years. Lenders are more likely to trust individuals with a well-documented financial record.
The Good News
When you close an account in good standing, it usually remains on your credit report for 10 years. This means it will still contribute to the length of your credit history during that time. However, after it drops off, the total age of your accounts could significantly decrease, especially if the card you closed was your oldest account.
Pro Tip
Think twice before closing one of your oldest credit cards. If it doesn’t have an annual fee, it may be worth keeping it open to preserve the age of your credit history.
A Less Diverse Credit Mix
Your credit mix plays a smaller role in determining your credit score (10%), but it’s still an essential factor that reflects your ability to manage different types of debt.
What is Credit Mix?
Credit mix refers to the variety of credit accounts in your name, such as credit cards, car loans, student loans, or mortgages. A healthy mix shows lenders you can successfully juggle various types of credit.
Example of the Impact
Imagine you have three active accounts:
- One credit card
- One student loan
- One car loan
If you close your credit card account, your mix will now include only installment loans, which could negatively affect your credit score slightly. This might make future lenders think twice about extending revolving credit to you.
Pro Tip
If you’re building or maintaining your credit score, keeping at least one credit card open could help diversify your credit portfolio.
Read Also: Is Kohls Credit Card Changing To A Visa Card?
How to Safely Cancel a Credit Card in 6 Steps: Does Canceling A Credit Card Hurt Your Credit?
If you’ve decided canceling a credit card is necessary, here’s how to do it while minimizing any negative impact on your credit and financial health:
1. Redeem Your Rewards First
Before you close your account, check for any remaining rewards like cashback, points, or airline miles. Many credit cards require active accounts to claim rewards, meaning unused points may be forfeited after cancellation.
- Consider using points for travel, gift cards, or cash back.
- Some programs allow you to transfer points to other cards within the same issuer.
- By redeeming your rewards first, you maximize the value of your card one last time.
2. Pay Off Your Balance in Full
Even if you cancel the card, you’re still liable for paying off any balance you owe. Leaving an unpaid balance means you’ll continue to incur interest charges until it’s fully paid.
Here’s why paying off your balance makes sense:
- It ensures your credit score isn’t hurt by missed payments.
- You avoid accumulating unnecessary interest fees.
- Once your balance is zero, it’s easier to proceed with canceling the account.
3. Contact Your Card Issuer
Reach out to your credit card issuer’s customer service team to formally initiate the cancellation process. You can easily do this work over a phone call. Have the following information and questions ready:
- Your account details for verification.
- Confirmation of your statement balance (ensure it reads zero).
- Ask if any additional steps are needed, based on your cardholder agreement. This step ensures you’re complying with any specific requirements the card issuer might have for account closures.
4. Send a Certified Letter
For added verification, it’s a good idea to follow up your request with a certified letter to the card issuer. This provides tangible proof that you made the request.
What to include in the letter:
- Your full name and account details.
- A direct request to cancel the card.
- A request for written confirmation once the account is closed.
Using a certified mail service ensures that your request is received and processed.
5. Monitor Your Credit Reports
After your card is canceled, monitor your credit reports to make sure the closure is accurately reflected. Check with major credit reporting agencies (Equifax, Experian, and TransUnion) to confirm that:
- The account is marked as “closed by customer.”
- There are no lingering issues like unpaid balances or inaccuracies.
- If you notice an error, you can dispute it with the reporting agency.
6. Keep Old Statements for Reference
Finally, hold onto your last few billing statements for future reference. Even after your account is closed, having copies of your statements may provide helpful clarity in the event of disputes or if you need access to any records.
Read Also: Does Avant Check Income For Credit Cards?
When is it Appropriate to Delete a Credit Card?
While canceling a card often has its downsides, there are situations where it might be the right decision:
- High Annual Fees: If yearly fees on a particular card outweigh the benefits or rewards you’re receiving, it might be better to cancel it. However, consider asking the issuer for a downgrade to a no-fee version before closing the account.
- Temptation to Overspend: If having the card leads to temptation and you’ve struggled with debt before, removing that temptation may outweigh potential credit score impacts.
- Low Credit Limit: If the card has a low credit limit and doesn’t contribute significantly to your overall credit utilization, the impact of canceling it might be minimal.
- You No Longer Use It: Store-specific credit cards or outdated secured cards are candidates for closure when you’ve outgrown their benefits.
Read More: Alliant Credit Union Credit Card: A Review Guide
Does Canceling A Credit Card Hurt Your Credit? Conclusion
Canceling a credit card doesn’t have to spell disaster for your credit score, but it’s a decision best made strategically. Consider the potential impacts on your credit utilization and account age, and explore alternatives when feasible.
Remember, a credit score is just one part of your financial health. Maintaining responsible habits like paying bills on time and keeping balances low can help offset any temporary score dips.
If you’re unsure whether canceling a credit card is the best move, speak with a financial advisor or explore tools that simulate how changes to your accounts may impact your score. Thoughtful decisions can help you strike the right balance between financial wellbeing and convenience.
