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Credit cards can help you build credit, but what happens if you want to close your account? In some situations, closing a credit card can negatively affect your credit score. If you’re considering closing 1 or more credit cards, it’s important to understand what that can mean for you.
Let’s explore how closing a credit card impacts credit, when it makes sense and alternatives to closing a credit card.
Your creditworthiness is determined by a combination of factors, including your payment history, current debt, length of credit history (the age of your credit accounts), credit mix and credit utilization, among other factors. Closing a credit card directly impacts credit utilization, length of credit history and credit mix.
A longer credit history generally makes a positive impact on your creditworthiness. Canceling a credit card you’ve held for some time may lower the average age of your accounts, which typically is an important factor in your credit history. In general, the older your credit account, the more significant the impact of closing it may be.
If the account was closed in good standing, it can stay on your credit report for up to 10 years and will continue to contribute to your credit during that time. At the same time, accounts that are closed with missed payments typically remain on your credit report for 7 years.
Credit utilization is the amount of credit you’re using across your accounts compared to your total credit limits. Closing a credit card can increase your credit utilization if you have any other revolving debt, such as credit card debt, which can negatively impact your creditworthiness.
Your credit mix looks at the types of accounts you have. A more diverse mix, including both revolving and installment debt, is generally more favorable. If you close your only credit card, that can mean a less diverse credit mix, which can negatively affect your credit.
Despite the possible downsides of closing a credit card account, there are some scenarios when it makes sense to cancel your credit card.
If your card has a high annual fee and you’re not using it enough to make the most of your benefits, then it may be worth closing.
Thinking of cancelling your card? Explore alternatives before you decide.
If you find that the temptation to overspend with a given credit card is too high, closing that account may be a sound financial move.
In some situations, it may be best to avoid closing a credit card account. If these reasons have you thinking of credit card closure, then it may be better to consider other options.
If you’re carrying a balance on one credit card, closing an account will increase your overall utilization. That can have a negative impact on your credit score.
You may consider closing an old credit card simply because you no longer use it, or it has less terms which are no longer suitable for your finances. However, because the length of your credit history can include both the average age of all your accounts as well as the age of your oldest account, closing your oldest credit account could have a big impact on your credit score.
If you only have a few credit accounts and are still considering closing a credit card account because you don’t use it or find there’s too much temptation to spend, you may want to look at potential alternatives.
Closing even one account can increase your credit utilization and reduce your credit mix. Those factors can have a negative impact on your credit score. It can also lead to a thin credit file, which can make it more difficult to qualify for credit in the future.
Before you decide to close your credit card, it may be beneficial to consider your options.
If your card has a high annual fee, changing to a no-annual-fee card may be the solution. Some issuers may allow you to keep your account history when making the switch. Contact your issuer to see if this is an option.
If your credit card annual percentage rate (APR) is high and you can’t immediately pay off the balance, you may want to consider a balance transfer credit card. That would allow you to move your credit card debt from one account to another. Many balance transfer cards have a low introductory APR, which typically lasts 12 to 21 months. If you can pay off the balance within that time frame, you may be able to save on interest.
Keep in mind that these cards typically charge a balance transfer fee. So, check the terms of the offer carefully.
If you close a credit card, it’s important to do so responsibly so you can minimize any potential credit damage. Follow this checklist of tasks to avoid issues with your credit card closure.
To close your credit card responsibly, pay off your existing debt before closing the card. That way, you won’t have to worry about the existing balance accruing more interest. If you owe money when you close your card, you’ll still have to make monthly payments until you’ve paid off the balance.
You’ll likely lose access to any rewards associated with a credit card once it’s closed, so redeeming your points or miles beforehand is a good idea. Depending on your issuer, you may also have the option to transfer your rewards to partners, so you can still get value out of them in the future.
If you’ve set up automatic payments for monthly bills or other expenses, be sure to cancel these recurring payments or transfer them to a different card before moving forward. Update your payment information as soon as possible to avoid any late fees.
Contact your card issuer’s customer support and let them know you want to close the account. If you’re reaching out via chat or a phone call, request a written acknowledgment and ask for them to note that the account closure was requested by you rather than the lender.
Once the credit card issuer confirms that the account has been closed, properly destroy the card by either using a shredder or by cutting the card into pieces so that any information is obscured or indecipherable. You can also dispose of the pieces separately so that the card information can’t be pieced together. If you have authorized users on the card, they should also dispose of their cards in this way.
The exception here is if the issuer asks you to return the card or cards.
You will want to check your credit reports around 30 days after you have requested a credit card closure. Check to confirm that the report states that the closure was at the cardholder’s behest. If you find any incorrect information in your report, contact the credit bureaus (as well as the lender) to have the discrepancies resolved.
Yes, you can close a credit card with a balance, but you will still be responsible for paying it. The debt may continue to accrue interest, and if not paid, could eventually become a charge-off. At that point, it may be sold to a collection agency.
It depends on several factors, such as how old the account is and how much revolving debt you carry on other cards.
To keep overall credit utilization low, try to pay off the balances of your credit cards or keep the outstanding balances as low as possible.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
