Is closing a credit card bad?

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If you’re thinking about canceling a credit card, it’s important to know the potential benefits and risks associated with closing a credit account. While closing a credit card can be as simple as contacting your bank and requesting that they close the card, there are a lot of variables to consider first—whether the card has an outstanding balance, whether there are alternatives to closing the credit card and whether closing the credit card will have a negative effect on your credit score.

How does closing a credit card affect credit?

Does closing a credit card affect your credit? It can, depending on how many other credit accounts you have open and whether you use those credit accounts responsibly. Knowing how your credit score works will help you reduce the impact that a closed credit card might have on your credit.

Here are the two big ways in which closing a credit card affects your credit:

Closing a credit card can increase your credit utilization ratio

Credit utilization ratio makes up 30 percent of your FICO credit score. Since your credit utilization ratio is the ratio of your current balances to your available credit, reducing the amount of credit available to you (by closing a credit card) could cause your credit utilization ratio to go up and your credit score to go down.

Closing your oldest credit card can lower the length of your credit history

This makes up 15 percent of your FICO credit score. It’s worth noting that you probably won’t see the effect on your credit score right away, since closed credit accounts still contribute to your FICO credit score until they fall off your credit report—which could be as long as 10 years from now.

How much does closing a credit card hurt your credit? It’s hard to say for sure. If you continue to use your other credit accounts responsibly—making on-time payments every month, maintaining a low credit utilization ratio, paying off your balances regularly, etc.—your credit score isn’t likely to suffer too much. A person with a positive credit history is likely still going to have a positive credit history even if they close one of their credit cards.

5 reasons you shouldn’t close a credit card

Is closing a credit card bad? Not necessarily, but that doesn’t mean it’s always your best option. Here are five reasons you shouldn’t close a credit card:

  1. Your credit score is right on the edge of the good credit range, and you don’t want to risk losing any credit score points.
  2. You’re planning on applying for a mortgage, and you don’t want to risk losing any credit score points.
  3. The credit card you’re thinking about closing is your oldest credit card, and you don’t want to risk shortening the length of your credit history.
  4. You have a lot of outstanding balances on your credit cards, and closing one card will reduce your available credit to the point where it has a serious negative effect on your credit utilization ratio.
  5. You don’t really have a good reason for closing the credit card (you just don’t use it as often as you use your other cards), and that makes you wonder whether it’s time to close the account.

5 reasons you should close a credit card

There are some very good reasons to close a credit card. Here are five reasons you might want to close a credit card:

  1. You are having trouble using your credit cards responsibly—maybe you’re missing payments, or maybe you’re worried about going into credit card debt that you won’t be able to pay off.
  2. You are separating from a partner and need to close a joint credit account.
  3. You have a retail credit card, but you no longer shop at that store.
  4. You have an airline credit card, but you no longer fly that airline—and you don’t want to pay the high annual fees associated with keeping the airline rewards card open.
  5. You have a premium credit card that charges an extremely high annual fee, and the card no longer makes sense with your lifestyle or spending habits.

The best way to close a credit card

If you want to close a credit card, it’s important to know the steps involved in closing a credit account. Here’s the best way to cancel a credit card:

Pay off (or transfer) your outstanding balance

If you are closing a credit card account with an outstanding balance, you need to pay off or transfer your balance first. Closing a credit card with a balance doesn’t work because you can’t fully close a credit account if you still owe money to your lender. Either pay off your debt or transfer the balance to one of today’s best balance transfer credit cards.

If you are closing a credit card with zero balance, you can skip this step—but wait at least one full statement cycle after your card has reached zero balance to ensure that you aren’t forgetting about any final charges or interest that might come due.

Use any remaining rewards

If you are closing a rewards credit card, make sure to redeem any rewards you’ve earned first; those points and miles are likely to disappear when you close the account.

In some cases, you may be able to transfer your credit card rewards to another card in the same rewards system. If you have two credit cards that earn Chase Ultimate Rewards, for example, you can transfer your Chase points from the card you’re planning to close to the card you’re planning to keep open.

Contact your credit card issuer

Once you’ve cleared out your balance and your rewards, it’s time to contact your credit card issuer. Call the number on the back of your credit card, confirm that your current credit card balance is $0 and request to cancel the account.

The customer service representative may offer you an incentive to keep the account open—a lower APR, for example, or the opportunity to earn bonus rewards. Other representatives may simply pressure you to keep the account open. You can decide whether to accept any incentives you are offered, but don’t let yourself be talked into keeping a credit card that you’d rather cancel.

Follow up with a certified letter

After you cancel your credit card with customer service, follow up your request with a certified letter to your credit card company. Restate your decision to cancel your credit account and request that they send you a letter confirming that your credit card has been canceled and that the account balance was $0 at the time of cancellation.

Check your credit reports

Once you receive the letter from your credit card issuer confirming that your account has been canceled, check your credit reports with the three major credit bureaus (Equifax, Experian and TransUnion). Confirm that your credit card is no longer listed as active, and look for the note “closed at customer request.”

Destroy the credit card

The last step in the credit card cancellation process? Destroy the credit card. This will help protect you from identity theft and credit card fraud—and it’ll also prevent you from accidentally trying to use the canceled credit card to make purchases.

Alternatives to closing a credit card

There are a few alternatives to closing a credit card, especially if you don’t want to lose the benefits of keeping the credit account open.

Swap your card

If you are unhappy with your credit card, call your credit issuer and request to swap your credit card for another card offered by the same issuer. If you have a credit card with an annual fee, for example, ask if you can downgrade your card to a no-annual-fee version. You might even be able to swap a cash back credit card for a travel rewards card (or vice versa).

Upgrade to an unsecured card

Instead of closing a secured credit card, ask your credit issuer if they can upgrade you to an unsecured (that is to say, standard) credit card. Some credit issuers upgrade you automatically after you demonstrate responsible credit use for a specific period of time. If your credit issuer is not able to graduate you to an unsecured card, they may be able to tell you what you can do to earn the upgrade in the future.

Keep the card for small regular payments

If you don’t want to swap, upgrade or downgrade your credit card but you aren’t sure whether you really want to close the account, here’s one option: keep the credit card open, put one small recurring charge on it every month (like a Netflix subscription) and set up automatic payments so that your statement balance always gets paid on time. This keeps your credit card active without much effort on your part—and you can switch your day-to-day spending to a credit card you like better, such as one of today’s best rewards credit cards.

Bottom line

Is closing a credit card bad? While closing a credit card can have a negative effect on your credit score, there are pros and cons to closing a credit card—and only you can decide whether the benefits outweigh the drawbacks. If you are worried about the negative aspects of closing a credit card, consider alternatives such as swapping your credit card for another card offered by the same issuer.

Does closing a credit card hurt your credit? Closing a credit card can reduce your credit utilization ratio and/or reduce the length of your credit history, both of which could lower your credit score—but if you use your remaining credit cards responsibly, your credit history should remain positive.

Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson began her career working in the funeral industry, which may make you wonder why she works in personal finance now. Yet, the funeral industry taught the author everything she needs to know about the value of one's money and time. Johnson left the mortuary business a decade ago in order to explore her passion for personal finance and travel the world, and since then, she and her husband have built a debt-free lifestyle that has them on the path to retire very wealthy in their 40s. Holly's love of budgeting also led to the creation of her debt payoff book, “Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love."