The Impact that Closing a Credit Card Will Have on Your Credit Score

Nov 13, 2023 By Triston Martin

Will closing a credit card hurt your score? Closing a credit card account might affect your overall credit score. If you shut down an account for a credit card, the credit limit previously accessible to you will no longer be there. Your credit utilization ratio, or the proportion of your available credit that you are using, will increase as a result of this, and lenders will see this as a sign of risk since it indicates that you are using a greater portion of your available credit.

It is strongly advised that you maintain a utilization rate lower than thirty percent; generally, the usage rate should be kept as low as possible. To determine your credit usage ratio, take the sum of all your credit card balances and divide it by the sum of all your available credit. The percentage that you get is your credit utilization ratio.

If you close an account that has been open for a significant card of time and has contributed positively to your credit history, closing that account has a negative impact on your credit score. This is especially true if you close an account that has been open for a long period. Your credit score considers the age of your accounts; older accounts with longer payment histories positively impact your credit score.

Despite this, there is no need to be immediately concerned since closed accounts that have been paid off remain on a person's credit report for ten years and continue to be considered for calculating credit scores during this time. Your credit report would include information on closed accounts for seven years if any of those accounts were related to missing payments.

If you continue to make your payments on time after closing a credit card account, your credit scores should rise again within a few months, even if they drop temporarily after the account is closed. After some time, it will become clear that you have recently canceled an account and have not racked up any new debt. Therefore, you shouldn't cancel a credit card if you intend to apply for further credit within the following few months, such as a mortgage or an auto loan.

When It Is Appropriate to Close a Credit Card

There are a few instances in which it could be beneficial to your interests to cancel a credit card account. As an example, if:

  • You feel that more than the card's perks are needed to justify the hefty annual cost that it charges.
  • A high-interest rate applies to the card, and you must have a balance on it.
  • You are having a hard time keeping up with your mounting debt and finding it difficult to resist the allure of spending more than you can afford using your credit card.
  • You wish to replace a card with fewer features, such as a student or secured card, with a card that offers more perks, such as a normal or rewards card.

When You Should Play It Safe and Keep the Card

On the other hand, there are times when it would be better to leave the account open than to close it. Some examples of this include the following situations:

  • It is the account with the longest history included on credit report.
  • Because you do not have other open credit accounts, your credit file is likely to thin. This will make it more difficult for you to qualify for new credit in the future.
  • The fact that you don't use it regularly is the only justification for terminating your subscription to it.

The Secure Way to Cancel a Credit Card

  • If you still owe money on your credit card, you should get in touch with the company that issued the card so that you can formulate a strategy for paying off the debt. Before canceling the card, you should make every effort to pay off the balance.
  • If it is a credit card that offers rewards, you should cash in any awards that are still available so that they are well-spent.
  • Get in touch with the customer service department, explain why you want to terminate your account, and request that they provide you with written confirmation of the decision. Make sure it is recorded that you were the one who asked for the account to be canceled.
  • Follow up with a brief letter to confirm your cancellation in writing after you have already done so verbally. You need to include your full name, credit card account number, phone number, and address, as well as any further information on the call you had with customer support, in your letter. Remember to include a notation stating the account should be canceled at your request, and retain a copy for your records just in case anything goes wrong. It may take a few weeks to complete your request; moreover, if you have yet to receive a confirmation letter within a month, you should phone the company that issued your credit card to check on the status of your request.
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