Is Closing a Credit Card Bad?

The average American has about four credit cards. If you’re an average American, you might want to get rid of at least one of them, thinking it will help you gain control of your finances.

But is closing a credit card a good idea? In certain circumstances yes. But it will negatively impact your credit history and other factors that determine your all-important credit score.

Here’s what you should know about cancelling a credit card.

Why Closing a Credit Card Can Harm Your Credit Score

Your credit score is based on five things. The most important is your payment history, which tracks late payments, bankruptcies and accounts that were sent to collection agencies. That information accounts for 35% of your score.

Other factors include amounts owed, also known as credit utilization (30%), length of credit history (15%), new credit (10%), and credit mix (10%).

It’s easy to think that if you faithfully pay a card on time and eventually cancel it, it will boost your score. Think again. Gains in one scoring factor could be overshadowed by losses in others.

That doesn’t mean canceling a credit card is necessarily a bad idea. Just be sure you understand the ramifications before you do it.

Credit Utilization — and How It Rises When You Close Accounts

Credit utilization ratio is the percentage of available revolving credit you’ve used. Simply put, it’s the total cost of stuff you’ve charged on your credit card compared to how much you’re allowed to charge.

For instance, if your credit limit is $8,000 and your balance is $4,000, your utilization ratio is 50%. If your limit is $10,000 and your balance is $1,500, your utilization ratio is 15%.

The second example would be good, since any ratio above 30% damages your credit score.

The key thing here is that your ratio is based on all your credit cards, not just the one you use most often. Say you have three cards with the following numbers:

• Card 1: $10,000 limit / $8,000 balance
• Card 2: $6,000 limit / $4,000 balance
• Card 3: $12,000 limit / $0.00 balance

Your credit utilization ratio would be 43% ($12,000 balance divided by $28,000 limit = 43% credit utilization).

If you cancel card 3, your ratio will balloon to 75% ($12,000 balance divided by $16,000 limit = 75% credit utilization).

You’d be better off keeping that card active, just to avoid the utilization increase that would damage your credit score.

The Role of Credit History and Account Age

“Age is a state of mind,” is a nice mantra if you live in a retirement home or are a U.S. senator. It doesn’t hold water when it comes to your credit score.

Scoring models consider how long you’ve had your various accounts to evaluate how well you’ve managed credit over time. The longer your history, the better your score. If you close your oldest card, the length of your history will decrease and so will your credit score.

That’s not totally negative if you paid that card on time every month. Closed accounts with a positive history stay on your credit report for up to 10 years.

Credit Mix Considerations

Lenders prefer customers who’ve shown they can handle different forms of debt. That includes installment accounts like mortgages and auto loans, and revolving credit like credit cards.

Cancelling a credit card can diminish that mix, especially if it’s the only credit card you have. Credit mix accounts for only 10% of your credit score. That’s not a lot, but it could mean the difference between a “good” and “fair” credit rating.

And that can make a difference to the lenders deciding whether to give you credit.

When It Might Make Sense to Close a Credit Card

The net impact on your credit score might discourage you from closing a credit card. But there are times when canceling a card is a smart move, both mathematically and emotionally.

In the perpetual juggling act to pay monthly bills, it can give you one less thing to worry about. Canceling a credit card can save you a hefty annual fee. There are also half-measures that can work in your favor, like switching to a less-expensive card offered by the issuer.

High Annual Fees or Poor Value

Annual fees for credit cards vary wildly. The Consumer Financial Protection Bureau reported the largest issuers had an average annual fee of $157 in 2024, while smaller issuers averaged $94.

On the extreme end of the spectrum, premium cards that offer perks like hotel elite status and airport lounge access have annual fees approaching $1,000. Then there are cards that have no annual fee.

If you’re racking up free hotel nights and car rentals with a high-end card, you might want to stick with it. But if you’re paying $695 to occasionally eat free peanuts in an airport lounge, you might want to cancel that card and buy a pack of Planters to eat at the departure gate.

Unused Cards with Low Limits

Closing a card with a high credit limit will increase your credit utilization ratio, which isn’t good. But closing one with a low limit probably won’t make much impact on your ratio.

If you have a low-limit card you rarely use, there’s not much sense keeping it unless you just like having a fatter wallet.

Financial Simplification

Life is hectic enough without having to keep track of five or six credit cards. If you want to lessen the drama, review the credit score implications and get rid of cards you can live without.

It might make sense to transfer all your balances to one card with a low-interest introductory rate. That would jumble your credit history and mix, but the savings in interest payments and financial simplification might be worth it.

How to Close a Credit Card Safely

Canceling a credit card is relatively simple, though you shouldn’t rush the process. Among other things, you must make sure all incoming bills are taken care of.

If there are unclaimed rewards on the card, be sure to redeem them before canceling. And make sure any automatic withdrawals have been switched to a new payment source.

You should also never assume your credit card is canceled until you see the proof.

Pay the Balance in Full

In a fantasy world, closing a credit card would mean you could walk away from what you owe on it. In the real world, you must pay for everything you have bought using that card. That includes all pending charges and any penalties you’re on the hook for.

Also, if you have any automatic payments connected to your card, switch them to a new card or arrange some other form of payment. That will let you avoid possibly missing a payment and incurring late fees.

Consider a Downgrade or Product Change Instead

You can close a card without necessarily closing your credit account. Many issuers will let you switch to a new card that has different rewards, fees and benefits that make it more suitable for your financial situation.

Opening a totally new card will lower the age of your accounts. Switching cards will maintain your credit history and improve your credit score.

Confirm Closure and Monitor Your Credit

You can close an account online or by calling the issuer, but make sure all the i’s are dotted and t’s are crossed.

Ask the credit card company to confirm it in writing and note that you requested the account be closed. To be doubly sure, you could send a certified letter requesting to close the account.

Then keep an eye on your credit reports. If the account is still there after a billing cycle, raise the alarm with the issuer. You can also file a dispute with credit bureaus if necessary.

Avoid Other Major Credit Moves at the Same Time

If you plan to apply for a large loan, do it before closing your card. You’ll avoid the pitfalls of closing (lower utilization ratio, credit history, credit mix) that lower your credit score.

The lower the score, the less likely a lender will be to offer you a favorable interest rate on your new loan.

Alternatives to Closing a Credit Card

If you’re debating whether to close a credit card, remember that the issuer wants to keep you as a customer. That opens potentially attractive alternatives to canceling the card.

Tell the issuer you are considering leaving, but you might stay if you get a lower interest rate and/or waive the annual fee.

You could switch to a different card the issuer offers, one that has more favorable fees and other conditions. Switching cards will keep your account history intact, which helps your credit score.

Or you could stash the card in a drawer, a safe or a hole you’ve dug in your backyard. Just stop using that sucker unless it’s totally necessary.

If you go that route, be aware that some issuers will cancel cards that have no spending activity for a set timeframe. You might want to set up a small recurring payment on that card, like a 99-cent monthly cloud storage charge.

Is Closing a Credit Card Right for You?

Americans have between 600 million and 800 million credit cards, depending on the study you want to believe. Whatever the number, millions of accounts are ripe for closing.

One of your credit card accounts could be one of them. That decision is not as simple as it might seem, however.

There are positives, like getting rid of annual fees and simplifying your financial life. And there are negatives, like your credit score potentially taking a hit.

Everybody’s financial situation and goals are different, so there’s no one-size-fits-all answer to whether closing a credit card is the right move.

Weigh all those pros and cons, then decide if canceling a card is right for you.