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Does closing an old credit card improve your credit health? It depends on your situation, but like most things in life, closing a credit card comes with pros and cons.
On the positive side, closing an old or unused account could save you money if your card has an extraordinarily high interest rate or miscellaneous fees. Alternatively, if you have a shopping problem or an unmanageable debt load, it could make sense to close some cards to minimize your temptation to spend.
But before you rush off to cancel that credit card, here’s what you need to know:
Maintaining debt can be good for your credit health — if you manage it responsibly. And some of the biggest factors in your credit scores, like your credit card utilization rate and the average age of your accounts, could take a hit if you go through with closing that old card.
Of course, all these pros and cons depend on your situation, so it’s important to consider any additional factors before making a final decision. Read on to learn more about how to cancel a credit card, including what to do and what not to do.
How to cancel a credit card: The do’s
Do consider closing unused cards that are costing you money.
If a card has an abundance of fees, you may want to consider closing the card, especially if you don’t use it. In some cases, the credit card company may be willing to lower your interest rate or waive some fees, so you may want to call and speak to a representative before making any final decisions.What you need to know about credit card companies
Do be aware that you can usually cancel accounts that have an active balance.
How? By asking your creditor to close the account to new charges while you continue to pay down the balance each month. If you’re a heavy credit user, this may be a good way to stop yourself from spending while you’re working to reduce your balances.
Just be sure to watch out for additional fees and remember: When it comes to credit cards, out of sight doesn’t mean out of mind. If you forget about your account and stop paying down the balance, it may become delinquent.
Do aim to keep some accounts open.
This is generally recommended to keep your credit scores and debt balances healthy. Signs of active and responsible credit use are viewed positively by creditors. Closing too many accounts may also cause your credit utilization rate to shoot up and thus have a negative impact on your credit scores. More on that later.
Do remember to check your credit reports for updates and errors after you close accounts.
While you can generally expect that your credit card activity will be reported to the credit bureaus at the end of your billing cycle, this isn’t always the case.
And some bureaus take longer to update their records than others. Experian, for example, claims that “your credit report shows the balance on your credit card at the moment it is reported by your lender,” but different bureaus may update at different speeds and frequencies.
With that in mind, be sure to check up on your reports regularly to ensure there are no discrepancies. While the accounts and their payment histories may stay on your reports for seven or more years, the status should be updated to reflect that they are closed.How to dispute an error on your credit reports
How to cancel a credit card: The don’ts
Don’t lose the oldest account on your credit reports.
The oldest account often serves as a marker for your credit history. As a result, closing it could cause your credit history to appear shorter, which may harm your credit scores. A credit card upgrade or downgrade may be the better option.
Credit card upgrades and downgrades
Instead of closing a credit card, you may want to consider asking your credit card issuer if it will downgrade or upgrade your card. Either of these situations may be a better option than closing your card:
- Downgrading to a card with a lower annual fee or interest rate
- Upgrading to a card that allows you to earn rewards for everyday spending or travel
The idea behind downgrading or upgrading your card is that you may be able to keep the same account and preserve your credit utilization ratio and the average age of your accounts. This way you can get a new credit card and ditch the old one, without dramatically affecting your credit scores.
Don’t just throw away old cards and expect your accounts to close automatically.
Again, out of sight doesn’t mean out of mind. The best way to close a credit card account is to be as thorough as possible — that means paying off your balance in full and calling the card’s customer service department to get specific, detailed instructions about your next steps. The representative on the phone may try to persuade you not to close the account, so be ready to firmly state your intentions.
Typically, you’ll receive an account closing confirmation letter in 10 days. If for some reason you don’t, you should be able to confirm the account was closed by phone or email.
Don’t be pressured to cancel several accounts all at once.
Closing multiple accounts at once could look suspicious to creditors. It could also amplify some of the other negative effects of a single closure. If you still want to cancel numerous credit accounts, however, then spacing the closures over time could reduce the impact to your overall credit health.
Don’t count on a balance transfer as the answer to high-interest debt.
If you’re looking to move a credit card balance with a high APR onto a card with an introductory 0 percent APR period and can do so responsibly, consider a balance transfer. Some balance transfer cards offer 0 percent intro APR on balance transfers for a limited amount of time, which can allow you to pay down debt interest-free.
Balance transfer cards may provide temporary relief from high interest rates but they don’t make your debt disappear. If you’re approved for a transfer, you should make a plan for paying your debt down in the limited promotion period.
Also, in order to qualify for a balance transfer card, you typically need to have good to excellent credit.Eager to compare balance transfer options? See our picks for the best balance transfer cards
What closing a credit card means for your credit: A quick recap
Your credit utilization rate may increase.
Your credit card utilization rate is the ratio of your credit card debt to your total credit card limits. When you close a card, you reduce your overall available credit. Unless you also cut back on your spending, this can increase your credit utilization rate.
Many scoring models take your utilization rate into account, as it’s a quick and easy way to gauge how you’re managing your credit and whether you’ll be able to pay off your debts in the future.
If you keep your overall credit utilization below 30 percent, it typically shows lenders that you’re using credit, but not dependent on it.Credit card utilization and your credit scores
It could lower your average age of accounts.
Closing a credit card won’t impact your average age of accounts right away, as closed accounts remain on your reports for seven to ten years. If you close a card that is significantly older than your other cards, however, it could lower your average age of accounts after that initial period.
While your average age of accounts isn’t typically the most important factor used to calculate your scores, it does matter. If it falls, it can negatively impact your credit health.
If you’re looking to close an account, it’s best to do so mindfully. Be sure to educate yourself on how your credit health may be impacted so that it doesn’t come as a surprise. Once you’ve decided to take the plunge, be sure to monitor your credit reports to ensure your information remains error-free.