The Safe Way to Close a Credit Card Account

Tips for closing a credit card without harming your credit score

You might decide to close a credit card to control your expenses or avoid paying fees. But, before you proceed with closing your credit card, it’s crucial to assess the potential impact on your credit score and overall financial situation.

Key Points

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Impact of Cancelling a Credit Card on Your Credit Score

When you cancel a credit card, it can affect your credit score in several ways.

Credit Utilization

Your credit utilization ratio indicates the proportion of debt you are using in relation to your total available credit. If you decide to close a credit card, your available credit limit will decrease. This action may potentially increase your credit utilization, as the amount you owe on other accounts remains the same.

The amount you owe on your credit accounts contributes to 30% of your credit score. A high credit utilization rate, where you are using a significant portion of your available credit, can negatively impact your credit score and cause it to decline2

Average Age of Accounts

The duration of your credit history contributes 15% to your credit score. Generally, a longer history leads to a higher credit score. Your credit history length is determined by factors such as the age of your oldest and newest accounts, as well as the average age of all credit accounts.

Closing a credit card can decrease the average age of your accounts. If you close your oldest account, it may have a more significant impact on your credit score.

Credit Mix

Your credit mix contributes 10% to your credit score. It considers the different types of accounts you possess, such as credit cards, mortgages, car loans, or student loans.

Shutting down a credit card may result in a less varied credit mix, which could lead to a decrease in your score.

Reasons to Think About Cancelling Your Credit Card

Although cancelling a credit card could potentially affect your credit score, there are numerous valid reasons why choosing to do so might be the best decision for you.

Steps to Securely Close a Credit Card Account

If you have determined that closing a credit card is necessary, there are several steps you can follow to reduce any potential adverse consequences.

Common Myths About Canceling Credit Cards

There are some common misconceptions about the effects of canceling credit cards.

Many individuals mistakenly believe that canceling a credit card will improve their credit scores. However, while you may have valid reasons for canceling your card, it is essential to understand that this action may not necessarily boost your credit score. In fact, canceling an account can potentially reduce the average length of your credit history and increase your credit utilization, both of which can have adverse effects on your credit score.

It is important to note that although closing a credit card can have an impact on your credit score, the positive impact of making on-time payments on that particular card does not disappear. Even closed credit cards still appear on your credit reports and can influence your credit score for a period of up to 10 years.

If you cancel a credit card with on-time payments:

If you decide to cancel a credit card on which you have consistently made on-time payments, it can still positively impact your credit score even after cancellation. The card will continue to reflect on your credit report for several years, contributing to your credit history and potentially boosting your score.

If you cancel a credit card with missed payments:

In contrast, if you choose to cancel a credit card that has a history of missed or late payments, the negative information can linger on your credit report for as long as seven years. This can have a detrimental effect on your credit score, potentially lowering it significantly.

Should You Cancel Unused Credit Cards or Keep Them?

Deciding whether to cancel unused credit cards or keep them can impact your credit score. While closing unused cards can help prevent identity theft and fraud, it may also lower your available credit limit and potentially increase your credit utilization ratio. On the other hand, keeping unused cards open can help maintain a longer credit history and lower your credit utilization ratio. Consider the pros and cons before making a decision.

I Want to Close My Credit Account. What Should I Do?

If you decide to close a credit card account, start by paying off any outstanding balance. Contact the credit card issuer to request an account closure. Make sure to follow up to ensure the account is closed properly. Keep in mind that closing an account can impact your credit score, so consider the implications before taking this step.

How Do I Dispute an Error on My Credit Report?

If you find an error on your credit report, you can dispute it with the credit bureaus. Start by contacting the credit bureau that issued the report with the error and provide any supporting documentation. The bureau will investigate the dispute and update your credit report accordingly. Regularly check your credit report for errors to maintain an accurate credit history.

Common Credit Card Myths Debunked

There are many myths surrounding credit cards, such as the need to carry a balance to improve your credit score or the idea that canceling a card will immediately boost your score. It’s essential to separate fact from fiction when it comes to credit cards to make informed decisions about your finances. Educate yourself on credit card myths to better manage your financial health.

When Are Closed Accounts Deleted?

Closed accounts remain on your credit report for a certain period, typically seven to ten years, depending on the credit reporting agency. After this time, closed accounts will be removed from your credit report. Keeping track of when closed accounts will be deleted can help you understand how they impact your credit history over time.

The Bottom Line

To reduce your credit card debt, you have the option to cancel a credit card or simply stop using it. Keeping an unused credit card can have positive effects on your credit score by contributing to your credit history and lowering your credit utilization. However, there may be valid reasons for wanting to cancel a credit card.

If you decide to proceed with canceling a credit card, it is essential to consider the potential impact on your credit score and take the necessary steps to ensure a safe cancellation process.