5 Reasons Closing a Credit Card Can Hurt Your Credit

In some cases, closing a card could hurt your credit score

Close up of stack of credit cards
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People close credit cards for a variety of reasons. Sometimes, you may have gotten so behind on your payments you feel as if you can never catch up—closing the account seems to be the best option. Or, you might close your credit card simply because you don't want it anymore.

It's important to know that closing a credit card won't make delinquencies go away and, in some cases, closing a card could hurt your credit score more than it helps.

Here are a few reasons why closing credit cards can hurt your credit, and why it might be better to leave them open.

Closing a Credit Card With a Balance

When you close a credit card with a balance, your total available credit and credit limit are reported as $0. Since you still have a balance on that credit card with no credit limit, it looks like you’ve maxed it out (charged up to the limit).

Your level of credit card debt, including your credit usage to available credit ratio, is 30% of your credit score. A maxed-out credit card, or one that appears to be maxed out, can have a negative impact on your credit score.

Your Only Credit Card With Available Credit

Your only credit card with available credit is likely helping your credit score by lowering your overall credit utilization. Closing this card will leave you with more credit cards that have balances and higher credit utilization.

Just like closing a credit card with a balance, closing one without a balance can also affect your credit score, because you've used up all the credit that's available to you.

Your Only Credit Card

Since 10% of your credit score is based on the different types of credit you have, keeping at least one credit card in the mix will add points to your credit score.

Leave your only credit card open to show that you have experience managing various types of credit accounts. You should definitely leave the card open if it's the only active credit account you have and you're working to rebuild your credit history.

A good rule of thumb is to use your only card once in a while as well. If you tend to keep low balances, charge something on your card and pay it off. This demonstrates again your responsible use of credit.

Your Oldest Credit Card Account

Closing out an old credit card shortens your average credit age, which is 15% of your credit score. Lenders tend to view borrowers with short credit histories as riskier than borrowers with longer histories.

Closing your oldest credit card won't impact your credit score immediately. Once the credit card falls off your credit report several years down the road, you might see an unexpected credit score drop.

Credit Card With the Best Terms

Why let a good thing go? If you have a credit card with a low-interest rate, no annual fee, and other perks like travel insurance or great rewards, keep it. A credit card that charges you less for making purchases is far better than one that charges you more.

Compare your current credit cards to a few others on the market right now. If you have a credit card with better terms, it's better to leave it open.

When to Close a Credit Card

It’s OK to close a newer credit card that you no longer use as long as the card doesn't have a balance and you have another credit card. You might close a credit card that suddenly raises your interest rate or introduces an annual fee once you pay off any outstanding balance.

Your credit card issuer may close a credit card for you if you decide to reject new credit card terms. Finally, in identity theft and fraud situations, your creditors will advise you to close the credit card to keep the thief from making fraudulent charges.

Close Your Credit Card the Right Way

Always close a credit card by sending a written notice to the card issuer. You can call first to cancel your account, but always follow up with a letter confirming your desire to have the credit card closed. You should make sure the credit card is reported as "Closed" on your credit report.

It won't necessarily hurt your credit score if the credit card continues to be reported "Open," but double-checking will ensure your card is indeed closed.

You should be just as selective about the credit cards you close as the ones you open. Before you pick up the phone to alert your creditor that you want to close your account, make sure it’s not going to affect your credit score in a negative way.