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Does Closing A Credit Card Hurt Your Credit Score?

- Jun 13, 2021 credit, Credit Maintenance4 comments

People are always asking me: Does closing a credit card hurt your credit?

Closing a credit card does not hurt your credit directly. But closing a credit card may hurt your credit indirectly.

Confused? Let’s explain…

How is your FICO score calculated?

First, let’s go back a step and explain how a Fico score is calculated.

fico is score is calculated by the following:

  • 35% Timely payments – paying all of your bills on time
  • 30% Credit utilization – how much of your credit limit you spend (less than 9% preferred)
  • 15% Credit history- for how long you have credit
  • 10% Credit mix- the type of accounts you own
  • 10% New credit- how many credit inquiries or new accounts you have

(For more on this, see: The 5 Most Important Factors In A FICO Score.)

A slight effect to your credit utilization

After understanding how a Fico score is calculated, you’ll realize that by closing a credit card you may be hurting your overall credit utilization (even if the fact that you closed a credit card is not a red flag on its own).

For example, let’s say you have four credit cards, each having a $5,000 credit limit (totaling $20,000.) You spend a total of $10,000 on your credit cards. Your overall credit utilization would be at 50% ($20,000 limit with $10,000 spent.) Now, by closing one credit card, your overall utilization would become 75% even without spending an additional dime ($15,000 limit with $10,000 spent). Credit utilization is calculated per card not overall. So your overall utilization should not have a major impact on your credit score. But, it might affect your credit score slightly as you are losing some of your overall available credit.

TIP: If you have a second card with the same bank, they may allow you to transfer the credit line to the other card, so this will save you this headache.

Losing credit history

If you’re closing your oldest credit card, then this may affect your credit history. How? You will be losing your oldest tradeline.

Though closed accounts still stay on your credit report for up to 10 years, Fico does not count positive credit history from closed cards into their scoring models after they are closed for 6 months or more (they might count it slightly but not the same as an open and active card). 

For this reason, I always recommend that the first two or three credit cards that you open should be credit cards with no annual fees. As a result, you are able to keep them open for as long as you live.

Messing up your credit mix

It is beneficial to have five open trade lines with a mix of revolving loans (credit cards etc.) and installment loans (car loans, mortgages, etc.) By closing a credit card, you will be losing one of your active trade lines. This can hurt your credit.

Don't close a card within six months of applying for a mortgage

Please note, if you know that you will be applying for a mortgage in the next six months, I would never recommend closing a credit card as even the slightest effect in your credit score can end up costing you a lot of money in interest. I would recommend you rather wait till after the closing and only at that time you can consider closing the credit card.

Avoid paying an annual fee by downgrading

Is important to note that you do not necessarily have to close a card in order to avoid the annual fee. Most credit cards have the option to downgrade the card to a sister card that doesn’t come along with a high annual fee which will result in the credit card staying open but you will be able to avoid paying the annual fee. 

You can check out credit card downgrade options on all of a credit card pages under “Card Smart Tips And Advice

Conclusion

If you want to close a credit card, make sure to transfer the limit to another open credit card. Also, ensure that it is not one of your first three credit cards. Be careful to have five open trade lines at all times. If all of the above conditions are met, then closing a credit card won’t hurt your credit enough to make you poor.

If you’re closing a credit card, it is a great time to rethink the reason you opened the card in the first place. (Maybe it wasn’t the best credit card for you.) Need help choosing the right credit card? Hop over to our credit card page found here and let us help you choose the perfect credit card!

If you have any questions about anything discussed in this post please leave a comment and I will respond.

Frequently asked questions
Can I close a credit card while carrying a balance?
Yes. Closing a credit card will only affect new purchases, your existing balance will further need to be paid on the same terms as before you closed the card.
How long will a closed credit card stay on my credit report?
Closed credit cards stay on your credit report for up to 10 years. Late payments will stay on your credit report for up to 7 years.
If I have late payments on my credit card does it help me if I close the card?
No. Closing the card will not make the late payments go away. Late payments will stay on your credit report for up to 7 years
If a bank closed my credit card do I still need to pay the bill?
Yes. Even if your card was closed by the bank you still need to pay the bill on the same terms as before your credit card was closed. If you fail to pay the bill the bank will report your payments late to the credit bureaus.
Does closing a bank account affect my credit score?
No. Open or closed bank accounts do not show up on your credit report. They will therefore not hurt your score (unless you have an overdraft protection loan that shows up on your credit report)
Does ending a car lease affect my credit?
When you end a car lease, the tradeline will close which can potentially affect your score. But what are you going to do? Keep the lease forever? It’s part of healthy ups and downs (unless you're right before a mortgage and you have the option of extending your lease a drop)
I listened to David Branson several years ago and closed all my credit card accounts. Can I now get them reopened because it's affecting my credit?
Up to after about 6 months you can get probably get accounts back open, but being that it's so many years after the accounts were closed, I doubt banks will still be reopening the accounts
Will I lose Amex points if I close my business account but still leave a personal account open ?
You will not lose any Amex points as long as you have one credit card open that’s part of the Membership Rewards program. It doesn’t make a difference whether personal and business
What happens if I return an item that I purchased on an account that was closed since the purchase was made?
The store will still be able to refund the card and the bank will send you a check for the credit left on the account
If I have a credit card that I don't use, is it better to close it or will it affect my credit score?
Best is to use it. If you refuse to use it then it's anyway not helping you build credit. Closing it will not have an additional affect on your credit score
Anything I should know before closing a credit card that I haven't been using?
If it's one of your oldest 3 cards then don't close it. If it isn't, then before closing the card move the credit limit to another card of the same bank (if you have one)

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Sam Sam has nearly a decade's worth of experience educating his many readers on everything credit. Sam spends his days checking out credit cards for a full report, from the minute benefit details to the shebang of welcome bonuses. Plus studying the ins and outs of building proper credit. It’s his favorite pastime and he loves sharing it with others.

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4 Comments

  1. I’m an additional to someone on a card. At this point I don’t use the card but it is affecting my score, because the balance of the main user reflects on my score. Would you reccomend I close the card? Would it affect the main users credit?

    Reply
    • I would recommend you getting off that card. It will not affect the primary in any way. Just please make sure to follow these steps

      Reply
  2. I have a credit card that I opened recently and it has a very low credit limit, could closing it actually help my score by improving my average age of accounts?

    Reply
    • No. That’s not how it works

      Reply

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