Closing a long-held bank account can impact your score as it can shorten your credit history. While it might not have the biggest effect, you want to give yourself every chance of having an excellent score, right?
Your score is based on the average age of all your accounts, so closing the one that's been open the longest could lower your score the most. Closing a new account will have less of an impact.
Closing the card will not decrease your score at all, unless you are carrying large balances on your cards and the additional credit limit with the new card may be helping you.
The short answer is no. We never recommend closing a credit card for the sole purpose of raising your FICO Score.
Accounts closed in good standing may stay on your credit report for up to 10 years, which generally helps your credit score. Those with adverse information may remain on your credit report for up to seven years.
Your credit utilization ratio goes up
By closing a credit card account with zero balance, you're removing all of that card's available balance from the ratio, in turn, increasing your utilization percentage. The higher your balance-to-limit ratio, the more it can hurt your credit.
Keeping a low credit utilization ratio is good, but having too many credit cards with zero balance may negatively impact your credit score. If your credit cards have zero balance for several years due to inactivity, your credit card issuer might stop sending account updates to credit bureaus.
If you pay off all your credit card accounts (not just the one you're canceling) to $0 before canceling your card, you can avoid a decrease in your credit score. Typically, leaving your credit card accounts open is the best option, even if you're not using them.
There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.
There is no fixed amount of points that your score will drop by. The impact of closing an account depends in large part on how many other credit card accounts you have open, and what the balances and limits on those cards are.
It's important to pay off all your credit card balances before closing a credit card — not just the one you're closing. This will ensure that your credit utilization (which makes up 30% of your FICO Score) isn't impacted.
If you're closing accounts simply because you have too many, review whether closing newer accounts (especially those with lower credit limits) is to your advantage. By shedding newer accounts, you might actually boost your average account age and your FICO score.
Canceling a credit card is usually a bad idea, but there are a few exceptions. You don't want to close an account if it makes your credit utilization ratio go up, especially to more than 30%. Alternatives to closing a credit card include upgrading or downgrading the credit card in question to better suit your needs.
Owning more than two or three credit cards can become unmanageable for many people. However, your credit needs and financial situation are unique, so there's no hard and fast rule about how many credit cards are too many. The important thing is to make sure that you use your credit cards responsibly.
In general, keep unused credit cards open so you benefit from longer average credit history and lower credit utilization. Consider putting one small regular purchase on the card and paying it off automatically to keep the card active.
The other risk of leaving a card inactive is the issuer might decide to close the account. If you haven't used a card for a long period, it generally will not hurt your credit score. However, if a lender notices your inactivity and decides to close the account, it can cause your score to slip.
The average American has around four credit card accounts. But that may not be what works for you. Advantages of having multiple credit cards include increased buying power and the ability to maximize different card offerings and benefits.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
Carrying a balance does not help your credit score, so it's always best to pay your balance in full each month. The impact of not paying in full each month depends on how large of a balance you're carrying compared to your credit limit.
It can reflect badly on your score if you consistently (more than three months) have a utilization rate of zero percent because you've opened cards and aren't using them at all. That indicates to credit reporting agencies that you're not using your credit limits at all rather than using them responsibly.
Generally, a zero balance can help your credit score if you're consistently using your credit card and paying off the statement balance, at least, in full every month. Lenders see somebody who is using their credit cards responsibly, which means actually charging things to it and then paying for those purchases.
Closing one credit card account likely won't make a big enough dent to hurt your chances of approval with future lenders, especially if you'll still have another form of revolving credit open, but it's worth being mindful of this if you want the highest credit score possible.
Credit cycling is the practice of charging your credit card to its limit, paying the balance down, then charging more within the same billing cycle. There are legitimate reasons to cycle your credit, but there are risks, too.