You’ve probably thought about closing that unused credit card sitting in your drawer. Before you make that call, you should know it could drop your credit score by 50 points or more. The damage isn’t always obvious at first, and the reasons might surprise you. Your decision today could affect your ability to get a mortgage, car loan, or even a job tomorrow. Here’s what happens to your credit when you close that account.
How Credit Utilization Ratio Changes When You Close a Card
When you close a credit card, one immediate change hits your credit profile: your total available credit drops by exactly the amount of that card’s limit.
This reduction directly affects your credit utilization ratio—the percentage of credit you’re using compared to what’s available. Even if you don’t increase your spending, your utilization ratio automatically rises because you’ve shrunk your total credit limit. For example, closing a card can increase your utilization from 30% to 67%, pushing you well beyond the recommended threshold.
Here’s why it matters: credit utilization is the second most important factor in credit scoring models. Financial experts recommend keeping individual card utilization below 30% for optimal credit health.
If you’re carrying balances on other cards, losing that credit limit can push your utilization above 30%, where it starts damaging your score. You’ll see this impact immediately since utilization updates monthly when creditors report your balances and limits.
The Hidden Impact on Your Credit History Length
Credit utilization grabs the spotlight when you close a card, but there’s another factor quietly working behind the scenes: your credit history length. This component makes up 15% of your FICO score and can take a surprising hit when you close an older account.
Your average account age drops immediately when you close a card. If you’re closing your oldest card, the impact’s even worse—you might watch your average age plummet from 5.7 years to 3.5 years. The temporary dip in your credit score from closing an account in good standing can still affect your ability to qualify for favorable loan terms.
While closed accounts in good standing stick around for up to 10 years on your report, they’ll eventually fall off, causing another score dip. Shorter credit histories are particularly vulnerable to score drops from card closures, making it especially risky for newer credit users.
The older the account you’re closing, the bigger the damage. That’s why keeping aged cards open—even unused—protects this crucial scoring factor.
Why Your Credit Mix Matters More Than You Think
Think of your credit mix as the final piece of your credit score puzzle—it’s only 10% of your FICO score, but it can make the difference between good and excellent credit.
Your credit mix shows lenders you can handle different types of debt responsibly. A diverse mix that includes revolving credit, installment loans, and even charge cards demonstrates your ability to manage various financial obligations.
When you close a credit card, you’re removing a revolving account from your mix. If that’s your only credit card and you’re left with just installment loans like a mortgage or auto loan, you’ve reduced your credit diversity.
This narrowed mix signals less financial versatility to lenders. The interrelation between your remaining account types becomes even more critical in determining your overall creditworthiness.
You’ll feel the impact more if you have limited credit accounts. Someone with multiple cards won’t notice much change, but if you’re down to just one or two credit types, that closed card matters.
Calculating the Real Cost to Your Credit Score
Your credit mix might be the smallest slice of your credit score pie, but the numbers behind closing a card tell a much bigger story.
You’ll need to calculate two key changes: utilization ratio and average account age.
First, divide your total balances by total credit limits before and after closure. If you’re carrying $2,000 in debt with $10,000 in total limits, you’re at 20% utilization. Close a $3,000 limit card? You’ll jump to 29%. The ideal utilization ratio for the best credit scores stays between 0.01-0.10, so this jump could significantly impact your score.
Next, consider which card’s closure will hurt your average age most. Your oldest card’s closure hits hardest. Even though closed accounts in good standing remain on your credit report for up to 10 years, the immediate impact on your active account portfolio matters.
Factor in your credit history length, number of accounts, and credit mix to predict the exact damage. This calculation lets you make an informed decision about whether closing that card is worth the cost.
When Closing a Credit Card Makes Financial Sense
While protecting your credit score matters, sometimes the cost of keeping a card open outweighs the benefits.
You’ll want to close cards with high annual fees that don’t justify their rewards or when you’re facing exorbitant interest rates that could trap you in debt.
Life changes like divorce or security breaches demand immediate action—close compromised accounts to protect yourself from fraud or unwanted liabilities.
If you’re struggling with overspending, removing temptation by closing certain cards can improve your financial discipline.
Consider closing rarely-used cards with low limits that won’t significantly impact your score, and remember that many credit union members have successfully managed their finances by working with knowledgeable staff who can guide you through such decisions.
Just ensure you’ve paid off all balances first.
Sometimes financial security and simplified management trump a few credit score points, especially when keeping unused cards open could negatively affect your overall financial health by maintaining unnecessary credit lines.
Smart Strategies to Protect Your Score Before Closing
Before you close that credit card, you can take several strategic steps to minimize damage to your credit score.
First, pay down balances on your remaining cards to maintain a healthy credit utilization ratio. Since closing a card reduces your total available credit, keeping your overall utilization below 30% is essential for maintaining a good credit score. You’ll want to catch up on any late payments and set up automatic payments to protect your payment history.
Don’t close your oldest card if possible—it’s crucial for maintaining your credit age.
If you must close multiple cards, space out the closures over time. Avoid applying for new credit during this process, as hard inquiries will temporarily lower your score.
Monitor your credit reports regularly to track changes and ensure accuracy. Consider enrolling in a credit monitoring service to receive immediate alerts about changes that could affect your credit standing.
Understanding Which Credit Score Factors Are Most Affected
When you close a credit card, two primary factors in your credit score calculation take the biggest hit: credit utilization and length of credit history.
Your utilization ratio jumps because you’ve reduced total available credit while maintaining the same spending levels. If you’re carrying balances on other cards, they’ll now represent a larger percentage of your available credit. This matters because utilization accounts for 30% of your score. Since creditors prefer lower debt-to-credit utilization ratios, this increase can significantly impact your creditworthiness.
Meanwhile, closing an older account drops your average account age, especially if it’s one of your longest-standing cards. Since credit history length makes up 15% of your score, this can cause significant damage. Maintaining accounts with positive payment history contributes beneficial data points to your credit profile that are lost upon closure.
Your credit mix also suffers if you’re closing your only card of a certain type, though this factor carries less weight in score calculations.
Managing Your Remaining Credit Cards After Account Closure
After closing a credit card account, you’ll need to adjust how you manage your remaining cards to protect your credit score. Your total available credit has decreased, automatically raising your utilization ratio. Keep balances below 30% of each card’s limit and pay more than minimums when possible.
Don’t max out remaining cards or open new ones immediately—this’ll worsen your score through utilization spikes and hard inquiries. Instead, rotate usage among existing cards to keep them active. Use automatic payments to ensure you’re never late, and consider balance transfers if any card’s utilization climbs too high.
Monitor your credit reports to verify the closed account shows “closed by consumer” status. Track your new utilization numbers carefully using online calculators to maintain healthy credit.
Long-Term Effects on Your Credit Profile and Future Borrowing
While closing a credit card might seem like a simple financial housekeeping task, it’ll ripple through your credit profile for years to come.
Your reduced credit mix and shortened history will weaken your creditworthiness, potentially limiting access to premium loans and favorable interest rates. The impact on your average account age becomes particularly significant since this factor comprises 15% of your total credit score calculation. You’ll face higher borrowing costs as lenders view your diminished profile as increased risk, offering stricter terms and lower credit limits.
The loss of available emergency credit also reduces your financial flexibility.
While payment history can help rebuild your score over time, you’ve permanently erased that account’s positive history from your active profile. This decision affects your ability to qualify for mortgages, auto loans, and other major financing needs, making future borrowing more expensive and restrictive.
In Conclusion
Before you close that credit card, remember you’re potentially damaging your credit score through higher utilization ratios, shorter credit history, and reduced credit mix. You’ll face these consequences for years, affecting your ability to get favorable loan terms. If you must close a card, first pay down other balances, keep older accounts open, and consider the timing carefully. Your future self will thank you for protecting your credit score now rather than rebuilding it later.
References
- https://www.chase.com/personal/credit-cards/education/credit-score/does-closing-credit-card-hurt-score
- https://www.experian.com/blogs/ask-experian/will-closing-a-credit-card-hurt-your-credit/
- https://www.usffcu.com/blog/close-a-credit-card-without-hurting-your-credit-score
- https://www.lendingclub.com/resource-center/personal-finance/how-to-cancel-a-credit-card-without-hurting-your-credit-score
- https://www.investopedia.com/how-to-cancel-a-credit-card-4590033
- https://www.americanexpress.com/en-us/credit-cards/credit-intel/closing-a-credit-card/
- https://www.consumerfinance.gov/ask-cfpb/does-it-hurt-my-credit-to-close-a-credit-card-en-1231/
- https://www.lendingtree.com/credit-cards/articles/how-closing-a-credit-card-affects-your-credit-score/
- https://www.citi.com/credit-cards/understanding-credit-cards/does-closing-a-credit-card-hurt-your-credit
- https://www.chase.com/personal/credit-cards/education/build-credit/closed-accounts-on-credit-report