Does Closing a Credit Card Hurt Your Credit Score?
To close or not to close old credit accounts, that is the question. In our opinion, you should never close an old credit account. Closing open accounts may actually hurt your FICO score. In reality, you're never going to see an increase in your credit score from closing a credit card.
Closing your open accounts affects your credit utilization ratio and your credit history. Your credit utilization ratio is a key factor in determining your credit score and is measure of the amount of your available credit that you've used. Generally, the lower the ratio, the better. Your utilization ratio goes up whenever you close any accounts because your credit score looks at the amount of available credit you've used on each card, but more importantly the number is the total across all of your cards. Now you can see that once you close an account, the available credit for that account is no longer figured into your ratio, thus the percentage of debt/available credit will increase.
Another major reason why you should never close a credit account is because you benefit from a long credit history and those accounts speak to that credit history and your ability to manage credit.
Despite our advice of never closing a credit account, If you must close an account because you have a tough time keeping track of them, or you worry about identity theft, focus only on newer cards but don't close any cards, even the newer ones within six months of applying for a big loan.
Credit card accounts you should never close
Your oldest credit card account.
Closing out your old credit cards shortens your credit history. Lenders tend to view borrowers with short credit histories as riskier than borrowers with longer histories.
Any credit card that still has a balance.
When you close a credit card that has a balance, your total available credit is lowered to $0. Since you still have a balance on that credit card with no credit limit, it looks like you’ve maxed out. The amount of debt you have is 30% of your credit score; so a maxed out credit card, or one that appears to be maxed out, can have a very negative impact on your credit score.
Your only credit card with available credit.
Closing out this card will decrease total available credit and increase your credit utilization, which will hurt your credit score right away
Your only credit card.
Since part of your credit score into consideration the different types of credit you have, keeping a credit card in the mix will add points to your credit score. You could get turned down for a credit card in the future because the creditor thinks you don’t have enough experience with credit cards.
The credit card with the best terms.
Why let a good thing go? If you have a credit card that has a low interest rate, no annual fee, and other perks like travel insurance, keep it. A credit card that charges you less for making purchases is far better than one that charges you more.
