Many people consider cancelling a credit card at some point — whether to simplify their finances, avoid annual fees, or because they’ve opened a new card with better benefits. But one common concern is how such a cancellation might impact their credit score. Understanding this relationship is important before making a decision that could affect your financial health. In this article, we’ll explore whether cancelling a credit card really hurts your credit score and what factors you should consider before closing an account.
How Your Credit Score Is Calculated
Before diving into the effects of cancelling, it helps to understand how your credit score is determined. In general, credit scoring models like FICO and VantageScore consider several key factors:
- Payment History: Timely payments boost your score.
- Credit Utilization: The ratio of your current credit balances to your total credit limits.
- Length of Credit History: How long you’ve been using credit.
- Credit Mix: The variety of credit accounts (credit cards, loans, etc.).
- New Credit: Recent credit applications and accounts opened.
Each of these factors can be influenced when you cancel a credit card, especially if it affects your overall credit profile.
Does Cancelling a Credit Card Lower Your Credit Score?
The answer isn’t straightforward. Canceling a credit card can impact your score in a few ways:
- Impact on Credit Utilization Ratio: Your total available credit decreases when you close a card. This can increase your utilization ratio if you carry balances on other cards, potentially lowering your score.
- Length of Credit History: Closing older cards can shorten the average age of your credit accounts. Since a longer credit history tends to improve your score, this could have a negative effect.
- Credit Mix: If the card you’re closing is your only or oldest type of credit, it might affect your credit mix, which can influence your score.
However, closing a card won’t necessarily harm your score permanently. In some cases, the impact is minimal, especially if your overall credit profile remains strong.
When Cancelling a Card Might Not Hurt Your Score
There are circumstances where cancelling a credit card may have little to no impact or might even be beneficial:
- You Have Multiple Cards: Closing one of several cards typically doesn’t significantly affect your score, especially if your total credit limit remains high.
- Low or Zero Utilization: If you’re not carrying balances and your utilization ratio is low, closing a card won’t harm your score much.
- Oldest Credit Card: If the card isn’t your oldest account, cancelling it might have minimal effect on your credit length.
- High Fees or Unnecessary Costs: If a card charges high annual fees and you are sure you won’t benefit from it, cancelling might be a smart move.
What Should You Consider Before Cancelling a Credit Card?
To mitigate potential negative effects, consider the following tips:
- Check Your Credit Utilization: Ensure that your overall ratios remain low after cancellation. If necessary, pay down balances before closing.
- Think About Your Credit Age: Avoid closing your oldest account if possible, or plan to maintain it longer.
- Determine the Impact on Your Credit Mix: Have a diverse range of credit types to keep your score healthy.
- Evaluate Fees and Benefits: If a card charges high fees with no benefit, cancelling could be justified. Alternatively, consider downgrading to a zero annual fee card instead of closing entirely.
- Plan Strategically: Cancel your card during a time when your credit report is not under scrutiny, such as before applying for a loan or a new credit product.
How to Cancel a Credit Card Properly
Follow these steps to cancel your credit card without negatively affecting your credit profile more than necessary:
- Pay off your balance completely before requesting closure.
- Redeem any rewards or benefits accumulated.
- Contact your card issuer via phone or online portal to confirm cancellation.
- Request written confirmation for your records.
- Monitor your credit report afterward to ensure the account is reported as closed.
Frequently Asked Questions
1. Will cancelling a credit card permanently hurt my credit score?
Not necessarily. The effect can be temporary and depends on your overall credit profile. If managed carefully, you can cancel a card without long-term damage.
2. Is it better to cancel or downgrade a credit card?
Downgrading can help you avoid the impact on your credit history and utilization. It’s a good alternative if you want to avoid annual fees but retain credit benefits.
3. How long after cancelling a credit card will my credit score recover?
The recovery time varies. Usually, your score stabilizes within a few months, provided your overall credit profile remains healthy.
4. Can cancelling a card improve my credit score?
In some cases, yes. If the card was high-fee or negatively impacting your utilization ratio, cancelling it might benefit your score.
Final Thoughts
Canceling a credit card can affect your credit score, but the extent depends on various factors. Always consider your overall credit profile before closing an account. If you’re unsure, compare credit cards and explore options like downgrading or requesting a no-fee version to keep your credit healthy. To learn more about the best credit cards and how to manage your credit profile effectively, visit our blog.
Looking for a new credit card? Check out our Find My Card tool to discover the best options suited to your needs.