Credit experts advise against closing credit cards, even when you're not using them, for good reason. “Canceling a credit card has the potential to reduce your score, not increase it,” says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report.
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. At Experian, one of our priorities is consumer credit and finance education.
While closing a credit card can affect your credit scores, it's hard to say by how much. That's because there are other factors—such as the length of your credit history and whether you have a record of making payments on time—that also play a role in your scores.
The longer you've had credit, the better it is for your credit score. 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.
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.
As TransUnion and Experian note, a closed account that shows a positive history of payments is likely to help your credit score. Generally, a closed account with negative history can continue to hurt your credit score for 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.
Card issuers pull your credit report when you apply for a new credit card because they want to see how much of a risk you pose before lending you a line of credit. This credit check is called a hard inquiry, or "hard pull," and temporarily lowers your credit score a few points.
Key takeaways
If you don't use your card, your credit card issuer may lower your credit limit or close your account due to inactivity. Closing a credit card account can affect your credit scores by decreasing your available credit and increasing your credit utilization ratio.
Keeping the card open can help maintain a healthy credit score by contributing to your credit history and utilization ratio. However, there are valid reasons to consider canceling, such as high annual fees or difficulties managing multiple accounts.
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.
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.
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.
If you still have a balance when you close your account, you are required to pay off any balance on schedule. The card company is allowed to charge interest on the amount you still owe. Your cardholder agreement may give you any other details on how to close your account.
There's no such thing as “too long” to keep a credit card. If you're happy with your card and getting a lot of value out of the rewards, there's no harm in sticking with it. Likewise, if you've stopped using a card and it doesn't charge an annual fee, in most cases it's preferable to keep the account open.
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
A 600 credit score is labeled as fair, so it could limit you from landing better APRs or hurt your chances of getting approved for certain financial agreements such as mortgages and loans. Keeping credit card balances low and paying bills on time can help maintain and improve credit.
For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
Here's what can happen when you close an inactive card. It may lower your total available credit. This might seem obvious, but closing an account takes away some of your total available credit. And that can have the unintended consequences of lowering your credit score.
Keep your cards open, if it makes sense
But closing a credit card could hurt you in terms of your credit scores. That's because one of the largest factors in your credit scores is your credit utilization ratio, or how much credit you're using compared with how much you have available. The lower that ratio, the better.
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.
An initial credit inquiry during the pre-approval process. A second pull is less likely, but may occasionally occur while the loan is being processed. A mid-process pull if any discrepancies are found in the report. A final monitoring report may be pulled from the credit bureaus in case new debt has been incurred.
How does my income affect my credit score? Your income doesn't directly impact your credit score, though how much money you make affects your ability to pay off your loans and debts, which in turn affects your credit score. "Creditworthiness" is often shown through a credit score.
Things like new credit applications and missed payments may impact your credit score. You may be able to improve your credit score in a number of ways, including making sure you're on the electoral register, managing accounts well and limiting new credit applications.