Closing a credit card can affect your credit score, but sometimes it may still make sense. Before you cancel a card, it's important to understand how closing it impacts your creditworthiness, as well as what alternatives you may have.
How closing a credit card affects your credit
Whether closing a credit card is bad for your credit depends on how it changes key factors on your credit report, such as utilization, credit history and credit mix.
Credit utilization ratio
Your credit utilization ratio measures how much of your available credit you're using. Closing a credit card reduces your total available credit, raising your utilization ratio and negatively affecting your credit score.
Length of credit history
Your credit score also considers the age of your accounts. Closing an older credit card can shorten your average account age, which may slightly lower your credit score.
Credit mix
Credit scoring models may also look at the variety of accounts you manage. Closing a credit card or one type of account can reduce your credit mix, which might negatively affect your score.
When closing a credit card may make sense
While closing a credit card can impact your credit, there are valid reasons to do it.
Fees outweigh the benefits
If your card's high annual fee no longer matches the value of its rewards or perks, closing it could make financial sense.
You want to prevent overspending
If having access to too much credit tempts you to overspend, closing one card might help you stick to a budget and manage debt responsibly.
You want to simplify your finances
Reducing the number of cards you manage can simplify monthly budgeting and give you a clearer view of your overall financial picture.
Reasons to keep your credit card open
Before closing your card, consider why keeping it open might benefit your credit and finances.
Avoiding credit score impact
Keeping your account open can preserve your credit utilization ratio, credit mix and account age, which all support robust creditworthiness.
Maintaining rewards and perks
If your card offers travel rewards, cash back or other valuable perks, it may be worth keeping the account open even if you use it infrequently.
Preserving financial flexibility
An open credit card can give you a safety net for unexpected expenses or emergencies, provided you use it responsibly.
Alternatives to closing a credit card
If you're still on the fence about closing a credit card, it might help to consider these alternatives first:
- Change your card: Ask your issuer if you can switch to a no-annual-fee card to keep your account open without extra cost
- Use it occasionally: Make small purchases every few months and pay them off right away to keep the card active
Make the right choice for your finances
So, is closing a credit card bad? It can be, but it isn't always. Closing a card can affect your credit score by reducing available credit and shortening your credit history. However, if the card no longer fits your needs or has high fees, closing it could be a reasonable choice. Just be sure to weigh the pros and cons and explore alternatives before deciding.
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.
