You’ve likely heard that cancelling a credit card account could damage your credit score. And while it is true that closing a credit card can impact your score, that isn’t always the case.

Typically, it’s best to leave your credit card accounts open, even if you’re not using them. However, there are a few valid reasons why you may want to close an account. Keep reading to learn what they are, plus a details on how to cancel a card the right way.

Key Takeaways

  • Although it goes against general credit advice, in certain circumstances closing a credit card account is necessary.
  • A credit card can be canceled without harming your credit score⁠—paying off your balances first is key.
  • Closing a credit card will not impact your credit history, which factors into your score.

Understanding the Impact of Credit Utilization Ratio

There’s a reason why credit experts advise against closing unused credit cards. “Canceling a credit card has the potential to reduce your score, not increase it,” Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report, explains.

This potential score drop often occurs because closing a credit card can impact your credit utilization ratio. The ratio measures how much of your total available credit is being used, according to your credit reports. The more available credit you use (per your reports), the worse the impact will be on your score. 

Here’s a simple example of how closing a $0 balance credit card could backfire:

  • Credit card number one has a $1,000 limit and a $1,000 balance.
  • Credit card number two has a $1,000 limit and a $0 balance.
  • Your credit utilization on both cards combined is 50%. ($1,000 total balances + $2,000 in total limits = 50% utilization)
  • Close credit card number two and your credit utilization jumps to 100%. ($1,000 total balances + $1,000 total limits = 100% utilization)

You should aim to pay your credit card balances off in full every month. Doing so not only protects your credit scores, it can also save you a lot of money in interest.

Paying your balance in full is especially important before closing a credit card account. Provided all of your credit cards show $0 balances on your credit reports, you can close a card without hurting your credit score. 

The higher the utilization ratio, the more it can negatively impact your score so it is commonly recommended to keep it below 30%.

Good Reasons to Cancel a Credit Card

Canceling a credit card is usually a bad idea. Nevertheless, there are some circumstances in which a card cancellation could be in your best interest. Here are three.

Separation or Divorce

It’s best to close joint credit card accounts during a separation or divorce. As a joint card holder, you’ll be liable for any past or future charges made on the account. It’s not uncommon for an angry ex to run up excessive charges on a joint card out of spite.

If that happens—or even if routine spending occurs on a joint account after separation—the charges will be your responsibility as well. Your divorce decree might say your former spouse is responsible for the debt, but that won’t release you from your obligation in your lender’s eyes.

High Annual Fees

If your card issuer charges you a high annual fee for an account you don’t use, cancellation might be warranted. However, consider the following first.

If you receive benefits from the account that outweigh the annual fee, such as travel credits and perks, it might be worth the cost. An annual fee on a credit card you don’t use or benefit from is another story.

Before you cancel the account, try calling your card issuer to ask for the annual fee to be waived. Be sure to mention that you’re considering closing your account. It doesn’t hurt to ask, and you might be pleasantly surprised.

Too Much Temptation

Some people find the temptation of using credit cards too much to resist. And while this might be a valid reason to close a card for some, there are other ways you can try to curb overspending without sacrificing your credit score. 

For example, you could remove your credit cards from your wallet and store them in a safe place. By not having your cards readily available, you may find the temptation easier to resist. 

Once a credit card is canceled, you won’t be able to reopen the account.

Cancellation Checklist: 6 Tips

Let's say you do decide that closing the account is the best step. Here are six simple tips to help you navigate the process:

  1. Redeem unused rewards on your account before you call to cancel.
  2. Ideally, pay off all your credit card accounts to $0 before canceling any card. At the very least minimize your balances as much as possible.
  3. Call your credit card issuer to cancel and confirm that your balance on the account is $0.
  4. Mail a certified letter to your card issuer to cancel the account. In it ask that a letter confirming your $0 balance and closed account status be mailed to you in return.
  5. Check your three credit reports 30 to 45 days after cancellation to make sure that the account reports that it was closed by cardholder and that your balance is $0.
  6. Dispute any incorrect information on your reports with the three credit bureaus.

Closing a Credit Card Won’t Impact Credit History

You may have heard that closing a credit card causes you to “lose credit” for the age of the account. That is mostly a myth.

Credit expert John Ulzheimer, formerly of FICO and Equifax, confirms that closing a credit card will not immediately remove it from your credit reports. “As long as the credit card remains on your report, you will still get the value of the age of the account in both the FICO and VantageScore branding credit scoring models. The only way to lose the value of the age of the card is if it’s removed from your reports,” Ulzheimer adds.

A closed account will remain on your reports for up to seven years (if negative) or around 10 years (if positive). As long as the account is on your reports, it will be factored into your average age of credit.

15%

The percent FICO uses to factor in credit history as part of your overall credit score. Payment history and amounts owed, categories with the largest impact out of five, account for 35% and 30%, respectively. 

The Bottom Line

Don’t close a credit card account without a good reason. Having a lot of credit cards won’t necessarily hurt your credit score significantly if you handle them responsibly. However, if you need to cancel a card, do your best to reduce all your credit card balances first (preferably to $0), so you can either minimize or totally avoid any credit score damage.