Will Closing A Credit Card Affect My Credit Score?

Whether or not to close an old credit card account is something that many people struggle with. On one hand, it is enticing to shut down an account that's not as often as possible utilized to declutter your financial life. On the other hand, you will care about how closing a credit card will influence your credit rating. It is important to grasp the connection between closed accounts and credit to make the best decision for yourself.

The Effects of Credit Card Closures on Credit Usage

Regarding credit score, one of the most important factors is most likely the credit use ratio. This is the proportion you are using from the pre-approved total credit available for you. Most credit and financial experts advise keeping below the 30% mark in terms of credit use. If your balances remain the same, canceling a credit card lowers the total credit availability to you, therefore raising your credit use rate. Your credit score may suffer if you dramatically utilize this credit line.

For example, let’s say you have two credit cards:

Credit Card A: Over $2000 limit, $0 balance
Credit Card B: At $2,000 right now, the credit card has a $10,000 maximum.

Although the two cards have a combined credit limit of $12,000, the total owing is only $2,000. Your credit use then is 2,000/12,000 = 17%. But should you decide to cancel Credit Card A, your whole credit limit would decrease to $10,000. Using the same $2000 amount, your credit use is twenty percent ($2,000 / $10,000). Your score won't alter much even if you raise the use to around 3%; however, if Credit Card A had a $8,000 limit rather than a $2,000 restriction, the impacts would be more severe.

The good news is that as long as you have modest balances, closing an old card shouldn't momentarily lower your credit score. Just monitor closely the credit use percentage of the surviving accounts. Still, the change in credit availability might cause further trouble down the road.

The Effect on the Length of the Credit History

The other aspect of your credit score is the average age of credit accounts. This metric points to the period of active management of various forms of consumer credit. In general, a longer established credit history is an indication of lower credit risk for lenders. It lowers the average credit age of your account and makes your credit look newer and risky.

For instance, if you have had Credit Card A for 5 years and Credit Card B for 1 year, the average account age is (5+1)/2 = 3 years old. For instance, if you now close Credit Card A, then the average age will be reduced to 1 year. This accelerated reduction in your average account age can be detrimental to your credit rating, particularly if Credit Card A was once a significant part of your overall credit file.

The Impact over Time

However, it is important to note that one may find that closing an old credit card account does not necessarily have an impact on the credit score at present although the effects may be more profound at another time. , as mentioned above, this is aggravated by the fact that over time, paying your available credit from that account increases your utilization rate as you continue charging more to your other accounts. Also, as you acquire new credit accounts in the future, the average credit age begins to reduce even further since your oldest credit card does not support the average credit age.

Some FICO credit score models also consider how many accounts you have closed and how recently you have closed them. For instance, an individual who has closed numerous accounts abruptly will be considered riskier than an individual who hardly closes any accounts. Therefore, be very careful when closing accounts.

When is it okay to close a credit card?

In general, it is inadvisable to close your oldest credit card if you don’t have to. One should not rush to trade off the length of credit history for utilization rate fluctuation. However, there are certainly some scenarios where closing accounts makes perfect sense for your finances:

You are transferring your balance from another credit card to a new balance transfer card with a reduced interest rate. Depending on the fees involved, this can help you to save a lot of money in terms of interest rates. Just ensure that you keep your utilization low on your other cards as well.
Note that the annual fee card does not provide enough benefits to warrant renewal each year. However, it can be contacted to check whether it can drop the fee before one closes the card account.
You now have too many store cards that are not being used. However, put the card with the longest history in the back of the drawer and don’t shut it down.
You sign up for a retail card specifically to get a discount on a single large purchase and will never use the card again. This one doesn’t have to remain open in this case.
Fast forward to today, you have switched your financial institution and you do not have a convenient way of accessing that old student card you used to own in college. Ok if you have several other sound credit cards which are frequently used and managed properly.

Monitor Your Credit Regularly

Look at your credit reports from Equifax, Experian, and TransUnion at least once a year before opening or closing any accounts. Some credit reporting agencies like Credit Karma offer free weekly updates on your credit scores. This will enable you to prepare for the major credit changes and also to alert you in case there is any unfamiliar credit behavior.

Whether closing your oldest credit card can help or harm depends on your credit situation as a whole. You should carefully consider extra variables such as your balances, payment behavior, inquiries, variety and stability of your accounts, and stability in your income before making the final decision. By making sure you plan well, you can close accounts if you have to do so without incurring much of a loss on your credit scores.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!