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If you’re struggling with credit card debt, you’re not alone. According to Experian, consumers had an average credit card balance of $5,221 in 2021. And, because some credit cards charge high interest rates, that balance can quickly balloon out of control. Closing a credit card can be an effective way to limit your spending, but closing a card can affect your credit score. However, there are safe ways to cancel a credit card without damaging your credit. To close a credit card and minimize the impact to your credit, look at your credit card’s age, fees, and credit utilization. Is It Bad to Close a Credit Card?Whether you have too many credit cards to manage or a card that has high fees, you might be wanting to close one or more of your accounts. Although closing a card can be a smart idea for some people, there are some drawbacks to consider: You May Increase Your Credit UtilizationYour credit utilization affects 30%1 of your FICO credit score. Credit utilization is how much of your available credit you use. For example, let’s say you have three credit cards:
Your total available credit is $8,500, and you are using $2,900 of it. Divide your current balance by your total available credit to get your credit utilization. So, in this scenario, you have a credit utilization of 34%. When you close a credit card, you lose that available credit and your credit utilization rises. For instance, let’s say you closed card #2. You’d lower your spending limit by $2,500, so the new amount of available credit is $6,000. Divide your current balance by the available credit — $2,900 divided by $6,000 — and your new credit utilization is 48%. Having such a high credit utilization can cause your credit score to decrease. It Affects the Length of Your Credit HistoryWhen evaluating your credit, lenders want to see that you have a history of managing debt responsibly. In fact, the length of your credit history is so important that it makes up 15%1 of your FICO credit score. FICO considers the age of your oldest accounts, the age of your newest account and the overall age of all your accounts when determining your score. Before canceling a card, think about how long the account has been open. If the card you want to cancel is your oldest account, closing it could significantly shorten your credit history and drop your score. You Might Impact Your Credit MixCreditors look for borrowers that are capable of juggling multiple forms of debt, such as installment loans and credit cards. That’s why having multiple forms of credit — known as your credit mix — determines 10%1 of your credit score. If you only have one or two credit cards and close an account, you’ll have less of a credit mix and your credit score may go down. Why You Should Close a Credit CardDespite the drawbacks of closing a credit card, it can make sense in the following situations:
Why You Should Not Cancel a Credit CardAlthough canceling a credit card can make sense in some situations, it isn’t always a good idea. Think twice before closing a card for the following reasons:
How to Safely Close a Credit CardIf you’ve weighed the pros and cons of closing a card and decide to move forward, here’s how to close a credit card and minimize the damage to your credit score:
Managing Your CreditClosing a credit card can have a significant impact on your credit score, so it’s important to weigh the benefits and drawbacks. Depending on your credit history and financial goals, it may make sense to delay canceling your card for now. If you do decide to close your credit card, make sure you use up your rewards before canceling and verify that the account has been closed by checking your credit report. Learn More: Do Student Loans Affect Credit Scores?
Is it better to cancel unused credit cards or keep them?It is better to keep unused credit cards open than to cancel them because even unused credit cards with a $0 balance will still report positive information to the credit bureaus each month. It is especially worthwhile to keep an unused credit card open when the account does not have an annual fee.
Is it worse to close a credit card or not use it?If you miss a payment, that's never good. In contrast, canceling a credit card is usually a bad idea, but there are a few exceptions. Before closing a credit card, you need to look at two things: the overall economy and your current credit status. The inflation rate for the 12-month period ending March 2022 was 8.5%.
Does it hurt your credit to close a credit card without balance?Canceling a credit card — even one with zero balance — can end up hurting your credit score in multiple ways. A temporary dip in score can also lessen your chances of getting approved for new credit.
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