Does Canceling a Credit Card Hurt Your Credit?

Perhaps you’re wondering: Does canceling a credit card hurt my credit? It may seem counterintuitive, but closing a credit card can hurt your credit score in the short term. You may be less likely to spend if the card is gone, but without that information on your credit report, the lender has also lost insight that could help them gauge your reliability as a borrower.

It’s important to think about the benefits and drawbacks of what closing a card would do to your overall credit health and score before you go through with a cancellation. Credit limits give you a great deal of purchasing power, and canceling a card could possibly do more damage than good. That’s especially likely, as outlined below, if it’s an older card or has a high credit limit.

There are many different credit scoring models, each a little different from the next, but they generally focus on similar factors. Closing a credit card can affect your credit score due to three main factors:

1. Average age of your accounts
2. Different types of credit accounts you have open, also referred to as credit mix
3. Balances on your credit cards in comparison to the total credit limit, called a credit utilization ratio

Average age of accounts

The average age of your combined credit accounts helps lenders get a sense of how long you’ve been an active credit user. A long history of using credit responsibly helps lenders feel confident in your ability to continue healthy credit behaviors. If the credit card account you plan to close is one of your oldest accounts, it will reduce the average age of your remaining accounts when it is removed from your credit report. This would potentially lower your credit score, though usually not dramatically.

Credit mix

This factor focuses on the different types of credit accounts you have open such as credit cards, student loans, mortgages and car loans. Lenders typically want to know that you can manage several loan products. Having a mix of revolving accounts (credit cards) and installment accounts (mortgage) can help because it demonstrates your ability to carefully manage multiple financial obligations and builds your credit. If you close the only credit card account you have, it may make your credit mix less diverse and lower your score.

Credit utilization ratio

Your credit utilization is another factor that influences your score. It is the amount of debt you have compared to your total credit line available. Try to keep your utilization at 30% or less if possible, meaning you’re only using up to 30% of your overall limit.

How does canceling a credit card impact your score?

The three factors discussed above impact your credit score whether you choose to open or close an account. If you’ve held onto your very first credit card for many years and decide to close your account, that will reduce the average age of your accounts. Additionally, closing an account can shift your credit mix. And lastly, canceling a credit card with a high credit limit (i.e., $15,000) will significantly reduce your total credit line available, impacting your utilization. This, in turn, can impact your score.

When does canceling a credit card help you?

As you can see, closing out a card can impact your score given the impact on these factors. However, there are certain circumstances when closing an account is a good idea. If a card issuer charges a high annual fee, or you’re tempted to overspend, it may be best to close the account.

Key takeaways

Canceling a credit card can hurt your credit, so it’s important to consider the decision carefully before you do so. Creating a well-thought plan will help you avoid or minimize changes to your score. If you decide to close the account, pay off all outstanding balances and cancel recurring payments. Think strategically about when and how you cancel your credit card, consider all options, and choose wisely.

Want to learn more about how to create better credit management habits? Check out our blog How to Use a Credit Card Responsibly.