Is Closing a Credit Card Bad?

While closing a credit card can negatively impact your creditworthiness, there are plenty of valid reasons to cancel a credit card. Read on for helpful information to consider before you close your account.

How closing a credit card affects your creditworthiness

Closing a credit card can affect your creditworthiness in several ways, including your credit utilization ratio, length of credit history and credit mix. 

Credit utilization ratio

Your credit utilization ratio measures how much credit you’re using compared to your total available credit. Keeping your utilization on the lower end can help improve your creditworthiness. Closing a credit card can reduce your available credit, potentially increasing your credit utilization ratio.

Credit history length

Credit scores factor in the length of your credit history and may consider the age of your oldest and newest accounts, the average age of your accounts and how long different accounts have been open. Older accounts with a positive payment history can make you look like a reliable borrower, so closing an older account may negatively affect your creditworthiness.

Credit mix

Your credit mix refers to the different types of credit accounts you have open. For example, you might have a couple of credit cards, a personal loan and a mortgage. A diverse credit mix can signal to lenders that you can handle different types of debt. Closing a credit card, particularly your only credit card, can negatively impact your credit mix.

Reasons to close a credit card

You might close a credit card because of a high annual fee, to simplify your monthly finances or to help keep from overspending.

Avoiding annual fees

Sometimes, keeping a credit card with an annual fee open is worth it, and sometimes it’s not. Different credit cards have different annual fees, and if you have a premium credit card, you may be spending a significant amount of money to use it every year. Ask yourself if the credit card is worth it. What kind of perks are you getting? Do the benefits outweigh the costs?

Minimize overspending

Credit cards may make overspending easy, especially if you have multiple credit cards with high credit limits. Closing a credit card may help you stick to a budget.

Simplifying finances

Having fewer credit cards to manage can make keeping track of your finances easier. Simplifying the number of credit cards, balances and monthly bills can streamline your finances and give you a clearer idea of how much you’re spending.

Reasons to keep your credit card open

You might keep a credit card open to avoid a negative impact on your credit, to keep the benefits or for financial flexibility.

Potential negative impact on creditworthiness

If you close one of your credit cards and your spending stays the same, your credit utilization ratio will likely increase because you have less available credit. Closing a credit card can also negatively impact your credit mix and age of accounts. 

Loss of rewards programs or perks

If you enjoy the rewards program and other benefits your credit card offers, it may make sense to keep the credit card open. If the credit card has an annual fee, consider whether the cost is worth it for you.

Loss of financial flexibility

Closing a credit card may impact the amount of available funds you have for everyday or emergency spending.

When should you close a credit card?

Here are sometimes when you might consider closing a credit card.

Fees outweigh benefits

A high annual fee usually means you have a credit card with added benefits. You might be able to earn more points or miles on your purchases and have added perks like airport lounge access or free checked bags. That said, sometimes the fees can outweigh the benefits. 

Managing debt

If you want to get a better handle on your debt, reducing available credit and the temptation to spend could be a step in the right direction. Less access to credit means fewer opportunities to overspend.  

Streamlining finances

Multiple monthly payments can be tricky to keep track of. If you want to manage fewer payments, canceling a credit card you don’t use often or no longer use may make sense. 

Alternatives to closing a credit card

Instead of closing your credit card, consider downgrading to a no-annual fee credit card or using the credit card occasionally. 

Downgrade to a no-annual fee credit card

Instead of closing a credit card with an annual fee, you might be able to switch to a no-annual fee credit card with the same issuer. You may lose some perks, but you can keep your account open. 

Use the credit card sparingly

Consider using the credit card to make small purchases occasionally. This way, the credit card will stay active. 

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.

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