How Closing a Credit Card Account Can Lower Your Credit Score

Closing a credit card account might seem harmless upon first glance. Perhaps you want to manage fewer accounts or maybe you are worried about future payments. Depending on the nature of the account you are closing, however, this can negatively impact your credit score, so you must be sure to consider the long-term implications. Here is an overview on how closing a credit card account can lower your credit score.


If your account has an outstanding balance on it, then closing the account can hurt your credit score. Credit card companies will report your account as maxed-out when you close an account with an outstanding balance. Since almost 1/3 of your score is determined by your used credit to total available credit ratio, closing an account with an outstanding balance can significant lower your credit score.

On a related note, if you have multiple accounts with outstanding balances and are considering closing a credit card account that has no outstanding balance, then you will want to reconsider as well. The outstanding balances on your other cards may be hurting your credit score as described above, so having a healthy account on record can help to offset your utilization ratio. Rather can closing any of these accounts, consider directing your energy to paying off outstanding balances.


Credit diversification matters, and you can build up credit through a variety of different sources. If this is your only credit card, then you will benefit from keeping the account open, since having different sources of credit helps your score. Though you may not want to bother with an account, the benefits of building up your credit this way will pay off in the long-term.


Demonstrating a strong credit history helps your credit score via your average credit age. People with shorter credit histories are considered higher risk relative to those with longer credit histories. As such, if you close down a longstanding account, your average credit age will be shorter, and this can lower your credit score.


While it may seem obvious, you should reconsider closing a credit card account if it has ideal existing terms. Remember, by meeting your credit card payments consistently, you are building up your credit score over time – and if you are able to do so with terms that are beneficial, then why change! Preferential terms typically include lower annual fees or interest rates and great rewards perks.


There are a number of instances in which it would make sense to close a credit card account. These include, amount others:

  • Your credit card is new, is one of many in your possession, has no outstanding balance, and is one that you rarely use
  • Your credit card has no outstanding balance and has an unexpected interest rate increase or new annual fee
  • You credit card is suspected to have fraudulent activity on it

If you do decide on closing a credit card account, be sure to do so properly by calling or sending a written notice, followed by a written confirmation letter to your credit card issuer. You will then want to double check your next credit report to ensure that your account has been closed.

Overall, make sure to think through your decision fully when closing a credit card account. Doing so can help to preserve your credit score and save you some serious headaches down the road!