Your credit score is a powerful number. It can determine the loans you qualify for, the rates you get and the types of credit cards you can open. Because those three little digits mean so much, it’s important to keep your credit score as high as possible.
Certain credit card behaviors can lower your credit score — and unfortunately, closing a credit card is one of them. But if done correctly, the ding to your score can be minimal. In some cases, it’s worth doing anyway.
Why Does Closing a Credit Card Affect Your Credit Score?
To understand why closing a credit card can have a negative impact on your credit score, it’s important to understand how your credit score is calculated. There are several factors that make up your credit score, each of which is weighed differently:
- Payment history (35%)
- Credit utilization/amount owed (30%)
- Credit history length (15%)
- New credit/hard inquiries (10%)
- Credit mix (10%)
Closing a credit card encompasses two of these factors, explains Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth: “When you close a credit card, it will lower your total credit limit and may change your average account age.”
Lowering your overall credit limit can increase your utilization rate, and closing a card you’ve had open for a while will decrease your average credit history length. Both can affect your credit score.
How To Close a Credit Card And Make the Least Impact on Your Credit Score
The good news is there are ways to close a credit card that will make little to no impact on your score.
“Before you close a credit card account, make sure you pay down all your credit card balances,” said Andrew Latham, a certified financial planner and managing editor of SuperMoney.com. “This means paying off all your credit card balances — not just the balance of the card you plan to close. If you have credit card debt and you close an account, you will increase your debt-to-credit ratio, which will most likely harm your credit score.”
If you have no credit card debt, your credit utilization will not be affected by closing a card.
The other factor of concern is the impact that closing a card can have on your credit history length. However, Latham explains that this won’t have an immediate effect on your score.
“There is a myth that closing a credit card reduces the average age of your accounts and lowers your credit score,” he said. “The truth is credit card accounts that are in good standing when you close them will stay on your credit history for up to 10 years.”
Should You Ever Close a Credit Card?
Because closing a credit card can impact your credit score — albeit minimally if done right — you may want to keep the card open even if you are not using it. But there are some circumstances that could make closing your card worth it anyway.
“If the card has an annual fee, you probably should close it,” Zigmont said.
Another reason could be if you have a joint credit card and you are getting divorced, Latham said.
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