Closing a Credit Card—Good or Bad Move? | CCCS of Rochester
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Closing a Credit Card—Good or Bad Move?

Closing a credit card might seem like a financially responsible move to make. The truth, however, is more complex and depends on several factors. Closing a credit card without taking into consideration how many cards you have open, the age of the card, and overall credit health can harm your credit score.

Before closing your card, you’ll want to ask yourself these three questions: 

Will it affect my overall credit utilization ratio?

Your utilization ratio is dependent on how much credit you have available and how much you owe on your credit cards. This equation is ranked highly in your overall FICO credit score at 30%. Closing a credit card can cause your credit utilization to go up, which can negatively hit your credit score. Make sure that your available credit isn’t going to go significantly down before closing your card. The recommended credit utilization you should have is 30% or below, meaning the more available credit you have freed up the healthier your score will be if you close a card.

How long have I had the credit card?

While there are many cautionary tales to opening a credit card, it’s one way many people can begin establishing credit. If you’re considering closing your credit card, you should factor in the age of your card. By closing a well-established card, you run the risk of shortening your credit history, which can negatively impact your credit standing. The length of time you’ve had existing credit factors into your overall score at 15%. While this is important to consider, the impact of this might not be felt until the card falls off your credit score in 10 years.

Do I have a good credit mix?

The variety of credit lines you have open is factored into your credit score at 10%, meaning if you have a mortgage and car loan, and you’re closing one of your only credit cards, you might be hurting your mix of credit. While this isn’t factored in hugely, anyone on the cusp of good or bad credit can find themselves on the negative end of this consideration.

When should you close a credit card?

There are plenty of reasons to close a card. You should go ahead and close or transfer credit cards with high interest rates, if you’re getting a divorce and don’t want to run the risk of your ex running up debt, if it’s a retail card and you no longer use it, and if you’re overusing your credit cards and are worried about getting into debt or are already in debt.

When closing a card, you’ll either need to pay off the balance first or transfer the remaining balance to a new card. If you’re in credit card debt and are planning on working with a credit counselor, they may recommend you close your accounts anyway and enroll in a debt management plan. Through credit counseling, you’ll work with a counselor who can help you create a manageable budget to pay off your cards. While closing a credit card can have a negative impact, overspending on your credit cards will hurt you worse in the long run.

If you enroll in a debt management plan, a counselor will work with your lenders to lower your interest rate and consolidate your loans into one monthly payment to be paid off in three to five years. Whatever you decide to do, your decision will have to be made based on your own unique set of circumstances.

Looking for more advice on how to handle your credit card and overall financial management? We offer credit counseling to equip you with the skills you need to restore your finances.