There has been a lot of information that’s swirling around on the internet lately, some of it right, some of it wrong, surrounding credit scores. I’m creating this Credit Myths series as a resource for some of the more commonly asked questions about credit scores.
Does closing a credit card hurt my credit score?
Closing a credit card can potentially hurt your credit score depending on your overall credit profile. While it may seem like a smart move, especially for unused or high-interest cards, doing so can affect two major credit score factors: credit utilization and credit history length.
When you close a credit card, your total available credit decreases. If you have balances on other cards, this increases your credit utilization ratio (the percentage of credit used compared to available credit). A higher utilization ratio can lower your score, even if your spending habits haven’t changed.
Closing a card can also impact the average age of your credit accounts, especially if the closed card is one of your oldest. Length of credit history makes up about 15% of your credit score.
If you’re determined to close a card here’s a couple alternatives to keep in mind:
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Paying off balances on other cards to reduce utilization.
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Keeping older cards open and closing newer ones instead.
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Using cards occasionally to avoid inactivity closures by the issuer.
In most cases, it’s better to keep unused cards open with a zero balance to preserve your credit score, unless the card carries fees.
If your score is lower than you’d like, you’d probably benefit from a service like this one which lets you keep track of your credit and improve it for you.