Does Closing an Account Hurt Your Credit and Are There Alternatives to Canceling?

Closing an account can indeed hurt your credit, but it's not the only option. Closing an account can significantly lower your credit utilization ratio, which accounts for 30% of your credit score.

You might be wondering what happens when you close an account. Closing an account can also cause your credit age to decrease, which accounts for 15% of your credit score.

Closing an account can hurt your credit score in several ways. A closed credit card account can decrease the amount of available credit, which can raise your credit utilization ratio.

Having a high credit utilization ratio can decrease your overall credit score. For example, if you close a card with a $5,000 credit limit, you'll squeeze your credit utilization ratio.

Your credit score will take a hit if you close a card older than your average account age. The longer you hold an account, the more valuable it is in your credit score determination.

If you close a card with a large credit limit, you'll have less available credit to use. This can cause your credit utilization ratio to soar, making it harder to qualify for loans and credit cards.

You can't erase a bad payment history by closing an account. Open or not, the stain of late payments can linger on a card for seven to 10 years.

Here are some tips to keep in mind when deciding whether to close an account:

A closed credit card account can stay on your credit report for up to 10 years. If you had missed payments on the account before it was closed, those missteps remain on the account for seven years.

You can try to remedy the situation by using the card to pay a recurring bill, such as a gym membership or subscription. Paying the entire balance when the bill comes in can help avoid triggering interest charges.

If you're considering canceling a credit card, there are alternatives to explore before making a decision. You can switch your recurring payments to another card to avoid missing a payment or making a late payment.

Automatic credit card payments are a convenient way to ensure bills get paid on time, but it's essential to switch them to another card before closing a card. This will prevent any potential issues with late payments.

If you no longer want a credit card but don't want to close it, you can consider upgrading a secured credit card to an unsecured credit card without closing the account. This can be a great option for people trying to repair their credit.

You might be surprised to learn that you can often negotiate better terms with your credit card issuer before canceling your card. For example, if you're canceling due to fees, you could consider calling the issuer and asking if they have cards you'd qualify for that are fee-free.

Some issuers may offer a card with more favorable terms if you're willing to switch. You might be able to keep your payment history and avoid the hassle of opening a new account.

To explore this option, call your issuer and ask about their other cards. You can explain your situation and see what they have to offer. This could be a win-win for both you and the issuer.

You might be able to switch to a card that better fits your needs, such as a travel rewards card or one with a 0% interest rate. This can save you money and make your credit card more useful.

Some issuers may have cards that are more suitable for your financial situation. Be sure to ask about their other options and what you need to do to qualify.

Here are some questions to ask your issuer:

If you no longer want to use a secured credit card but are worried about the impact on your credit score, you can consider upgrading the account instead of closing it.

Secured credit cards are backed by cash deposits, and they can be helpful for people who are trying to repair their credit.

Closing an unused credit card can have unintended consequences on your credit score. If you have other credit cards with high balances, closing unused cards can increase your utilization rate, which can reduce your score.

The big three credit bureaus actually prefer to see more and older accounts, as it indicates a longer credit history. If you keep accounts open, even with no balance, they stay on your credit report, increase your total amount of credit available, and decrease your utilization rate.

However, if the unused card you intend to close is fairly new, has a low credit limit, or you don't have much debt, there's likely to be a minimal impact on your credit score.

Here are some scenarios where closing an unused credit card might make sense:

But before you make the decision to close, consider the following:

Closing a credit card can sometimes hurt your credit, but there are ways to minimize the potential damage. To start, think carefully about canceling a credit card on which you have developed a positive payment history.

The longer you hold an account, the more valuable it is in your credit score determination. This is because more credit history provides prospective lenders with more information on your financial behavior over time.

Closing a card older than your average account age will reduce your average and your score will take a hit. For instance, if you have five credit cards with ages 15, 12, 7, 3, and 2 years old, closing both the older cards will drop your average account age from 7.8 years to 4 years.

Closing a card with lots of available spending room can squeeze your credit utilization ratio, which will also hurt your credit score. If you're using three cards with limits of $10,000, $8,000, and $5,000, closing the $10,000 card will increase your credit utilization ratio from 30% to over 54%.

Remember, closing a card won't erase a bad payment history. Late payments can linger on a card for seven to 10 years, and once it's closed, you won't benefit from the age of the card.

You'll want to check your credit reports with all three major credit bureaus: Equifax, Experian, and TransUnion.

Closing a card with a high credit limit can do the most damage to your credit score. Canceling a card with a $5,000 or higher credit limit can squeeze your credit utilization ratio.

The second-biggest influence on your credit score is how much of your credit limits you have in use, called credit utilization. This is calculated both per card and overall.

Personal finance experts recommend using less than 30% of your overall credit limit. The highest scorers generally use less than 10%.

A credit utilization of 10% is considered good, but canceling a card with a high credit limit can increase your utilization ratio. For example, if you have a $10,000 limit and close the card, your balance of $2,000 becomes 20% of your remaining limits.

Closing a card with a high credit limit can also reduce your overall credit limit, making it harder to keep your credit utilization ratio low. This can affect your credit score negatively.

Canceling recurring payments is a crucial step when closing a credit card account. You'll want to switch these payments to another card to avoid missing a payment or making a late payment.

Automatic credit card payments are convenient, but they can also cause problems if not managed properly. Switch your recurring payments to another card before closing your account.

To do this, go through your last few statements and highlight which charges are the result of automated payments. This will help you identify which payments need to be switched.

Here's a quick checklist to ensure you don't miss any payments:

By taking these simple steps, you can avoid any potential issues with recurring payments and keep your finances on track.

Canceling a credit card can be a hassle, but it's essential to do it safely to avoid any financial repercussions. You should note your automatic payments, as highlighted in your last few statements, and switch each of those charges to another credit card to avoid late fees.

Before closing your account, pay your balance in full, including any pending charges. Most credit card issuers won't let you close your account until your balance is paid off. If you have a high balance, you'll need to make a plan to pay it off over time.

All unused points will disappear when you close your account, so don't forget to redeem your rewards. Some cards offer a "pay yourself back" feature, which you can use to clear out your statement balance.

Here's a step-by-step guide to canceling your credit card safely:

Closing a credit card you no longer need or want can have some negative consequences for your credit. Closing a credit card can hurt your credit because it can affect your credit utilization ratio.

It's a good idea to consider the impact of closing a credit card on your credit before making a decision. Closing an account can hurt your credit because it can reduce the amount of credit available to you.

You can minimize the impact of closing a credit card by taking steps to keep your credit utilization ratio in check. This means making sure you're not using too much of your available credit.