When you cancel a credit card, your credit score could fall in the short term, depending on how old the account is and how much other credit you have. But canceling a credit card account might also benefit your credit score in the long run if you manage the rest of your finances better as a result of having one fewer account to worry about.
You can estimate the effect of canceling a credit card on your credit score by using our credit score simulator. You can also check your latest credit score for free on WalletHub. You’ll get daily updates as well as personalized advice.
Why canceling a credit card could hurt your credit score temporarily:
One way canceling a credit card account could hurt your credit score is if it reduces the amount of credit that you have available and thus increases your overall credit utilization. Keeping utilization low is key for a good credit score. So closing a high-limit credit card account will hurt your score more than closing a low-limit account, all else being equal.
Another way canceling a credit card account could hurt your credit score is if it brings down the average age of your accounts. That can make it seem like your credit history is shorter than it really is. Closing one of your oldest accounts will lead to more credit score damage than closing a newer one.
Plus, you’ll have one fewer account reporting positive information to the credit bureaus each month, assuming the credit card you cancel was in good standing.
Why canceling a credit card might still make sense:
Despite the potential for short-term credit score damage, canceling a credit card can still be the right decision. For example, if you’re paying an annual fee for a card you don’t use, and you’re not planning to apply for a mortgage or car loan in next few months, it’s probably better to close the account. Credit scores usually rebound within 3-6 months after canceling a credit card. And if you don’t plan to borrow during that time, you don’t have to worry about that drop.
But an unused credit card with no annual fee is another story. Even a credit card with zero balance still reports positive info to the credit bureaus on a monthly basis. That means it’s an asset to your credit score.
In any case, you should know all the facts before you cancel a credit card, so you can make an informed decision. We’ll summarize the key considerations below.
Here’s what happens to your credit score when you cancel a credit card:
Credit score drops: Your credit score often goes down because the average age of your open accounts decreases and your overall utilization increases (since you have less available credit).
Scores bounce back: Your credit score should rebound within 3-6 months of canceling your credit card account. Make sure to have at least one open credit card remaining and pay all your bills on time.
What happens if you don’t cancel: A credit card that is in good standing will continue to help your credit score. Even if you don’t make purchases with it, it will still report positive information to the credit bureaus each month. This is definitely worth considering if your card does not charge an annual fee.
Age matters: Closing newer accounts won’t have as much of an impact as closing older ones.
Limit matters: Closing low-limit accounts won’t do as much damage as closing high-limit ones.
When score drops matter: If you don’t need the best score possible for the 3-6 months it usually takes credit scores to bounce back after credit card cancelation, the temporary drop shouldn’t cost you anything.
Bottom Line: Avoid canceling your oldest card and your card with the highest credit limit. That will mitigate the amount of credit score damage. And if you have to close your oldest or highest-limit card, make sure you do it at a time when you don’t need your credit score to be at its best.