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Closing a credit card can subtract points from your credit score. The impact is likely to be greatest if you are relatively new to credit and/or have few cards.
A lower credit score might make it harder to qualify for an apartment, a loan or another credit card, particularly if your credit score is near a lender’s cutoff. (You can see where you stand with your free credit score, which updates weekly on NerdWallet.)
The potential loss of credit score points doesn’t mean you should never close a credit card, but it does mean you should think strategically and choose carefully.
How canceling a card can hurt your score
It’s smart to have an idea of what closing the card would do to your credit score before you do it.
Credit limits, and how you use them, matter
Canceling your cards with the highest credit limits could potentially do the most damage. The second-biggest influence on your score is how much of your credit limits you have in use, called credit utilization. That’s 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%.
Here's an example: Say you have three credit cards, two with $5,000 limits and one with a $10,000 limit, for a total of $20,000. If your total balance across all three cards is $2,000, your overall credit utilization is 10%.
Canceling the card with the $10,000 limit cuts your overall credit limit in half. Then, your $2,000 balance is 20% of your limits, and that higher utilization will affect your credit score.
With credit, older is better
The average age of your credit accounts and the age of your oldest account also affect your scores, although the impact is not nearly as large as with credit utilization.
The impact of closing accounts depends on which credit scoring formula is used. FICO, which is the most commonly used formula, continues to use both open and closed accounts in calculating the age of your accounts. VantageScore, which is a FICO rival, may not. So closing an account may reduce the average age of your credit accounts and potentially lower your VantageScores.
When canceling a credit card makes sense
Here are some reasons why you might want to cancel.
High annual fees or poor customer service
Not all credit cards are a great match, and there are some valid reasons for wanting to close out your account. For example, If the card carries an annual fee you don’t think is worth it, you might want to cancel. You also might want to if customer service is consistently poor.
You've graduated to a permanent card
Some cards aren't meant to be kept forever. Secured cards, for example, are like credit-card training wheels. Once you’ve shown you consistently pay on time, some issuers will allow you to “graduate” to an unsecured card with better terms. But if the issuer doesn't offer cards that are more desirable, canceling may be a smart option. (Before closing your account, take these steps.)
Divorce or separation from a spouse
Sometimes life events make canceling a credit card the best choice. If you are getting a divorce or separating from a spouse, disentangling your finances might be one of the first steps you take. When it comes to credit cards, this means canceling joint credit cards or removing yourself or your spouse as authorized users to protect yourself from unauthorized spending.
Alternatives to canceling
Before initiating the credit card cancellation process, there are a few steps you can take to remedy the issues that are causing trouble:
Call and ask for better terms
If you are canceling because of fees, you could consider calling the issuer and asking if it has cards you would qualify for that are fee-free. You might be able to switch to another card from the same issuer and keep your payment history.
The same goes for cards that are no longer a good fit. Maybe you wanted an interest-free period when you opened a card and now you would rather have a travel rewards card. If the issuer offers one you qualify for, you may be in luck.
Build your score and then switch
If you don't qualify to switch to something with better terms right now, you could keep the current card active and paid off every month to help build your credit score. Moving up to a higher score could eventually make you eligible for a new credit card that offers rewards and specific perks.
Try different ways to avoid overspending
If you find yourself wanting to cancel a card to prevent the temptation to overspend, there are other paths to take. Try removing the card from your wallet and tucking it away in a safe place. The card won’t be easy to access but will be there if you need it in an emergency.
You could also wipe out the saved payment information at your favorite shopping sites where mindless spending can occur.
Steps to safely cancel a credit card
If you’ve decided that canceling is the best option, take these steps to make sure you’re doing it in a way that won’t harm your finances:
Automatic payments: Go through your last few statements and highlight which charges are the result of automated payments. Be sure to switch each of those charges to another credit card so future charges aren't declined, perhaps costing you a late fee.
Pay your balance: Most credit card issuers won’t let you close your account until your balance — including pending charges — is paid in full. If you have a high balance, you might need to make a plan to pay the debt off over time. If an issuer does let you cancel your card before paying off your balance, you are still responsible for those charges.
Redeem your rewards: All unused points will disappear when you close your account, so don’t forget to redeem the rewards you earned over the life of your account. Some cards offer a “pay yourself back” feature, which you can put toward clearing out your statement balance.