Could closing that unused credit card cause a crash in your credit score?
At a Glance
- Impact on FICO® Score primarily due to credit utilization and average age of accounts.
- Credit utilization accounts for 30% of your score, potentially increasing with closing.
- Length of credit history, forming 15% of your score, could decrease by closing older accounts.
- Closing may benefit if the card has fees and offers little value; impacts are often modest and temporary.
Credit Utilization and Its Crucial Role
Close an unused credit card, and you might see changes in your FICO® Score, a fact consolidated by multiple expert sources. Your credit utilization, which forms 30% of your FICO® Score, can rise when available credit drops due to a closed account.
Experts advise maintaining a credit utilization ratio below 30% to avoid negative impacts on your score.
So apparently closing a credit card can hurt your credit score, but so does opening a new one. You should have multiple cards but not too many or else… https://t.co/FjqtSjJbv9 pic.twitter.com/yl9uISGTXt
— Ivan Alcantara (@ivancalcantara) March 15, 2024
Impact of Account Age on Credit History
Another key factor is the “length of credit history,” representing 15% of your score. Closing a long-standing credit line could potentially reduce the average age of your credit accounts, thus impacting your credit score.
Moreover, retaining unused cards can be advantageous if you plan to apply for a mortgage or need future credit access.
Considerations for Card Closure
While closing a credit card may initially seem like a prudent decision, it’s essential to weigh individual pros and cons carefully. It’s important to consider personal spending habits, any associated annual fees, and overall financial goals before proceeding.
Managing multiple accounts can become overwhelming, and closing a card might offer relief, particularly if the card incurs a fee and adds little value. However, a strategic cancellation process involves paying off balances, clearing recurring charges, and confirming cancellation with the issuer. Final reminder by Brianna McGurran: “Every financial decision is a personal one.”
