How Closing a Credit Card Account May Impact Credit Scores | Equifax® (2024)

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How Closing a Credit Card Account May Impact Credit Scores | Equifax®? ›

Closing a credit card account may impact your debt to credit utilization ratio and also shorten the length of your credit history. If you've tried to make a large purchase such as a home or a vehicle, or even open a credit card account, you likely know the important role your credit scores play in lending decisions.

Your credit score might be hurt if closing the card changes your credit utilization ratio. Credit utilization measures how much of your total available credit is being used, based on your credit reports. The more available credit you use, the worse the impact will be on your score.

What happens next: If you paid the card faithfully while you were using it, that positive history stays on your credit report for up to 10 years, even after the account is closed. However, your credit might take a hit when a card with no balance is closed, because it reduces the amount of available credit you have.

While this may seem like a helpful move, there are some pros and cons to consider. Perhaps most significantly, closing an account may impact the variables that contribute to your credit score, such as the overall age of your credit lines or your utilization ratio, causing your score to decline.

Credit cards can help or hurt your credit score depending on how you use them. Paying your credit card bills on time each month is the best way to build a strong credit score. Paying late or missing a payment can lower your score. It's also important not to owe too much on your cards at any given time.

Sometimes the impact is minimal and your score drops just a few points. Paying off all your credit card balances in full (not just the card you're canceling) before closing your account can help you avoid a dip in your score.

In most cases, however, it's best to keep unused credit cards open so you benefit from longer credit history and lower credit utilization (as a result of more available credit). You can use the card for occasional small purchases or recurring payments to keep it active as opposed to using it regularly.

Consider downgrading the card to a no-annual-fee version if possible. Pay off any remaining balance before closing the card. If you can't do this, consider transferring the balance to a low interest rate credit card, or talking with your card issuer about a payment plan. Redeem your rewards.

The 5/24 rule is an unofficial policy that dictates that Chase won't approve you for its cards if you've opened five or more personal credit card accounts from any issuer in the last 24 months. Put simply, the number of cards you've opened in the previous two years will affect your approval odds with Chase.

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

Why did my credit score drop 40 points after paying off debt? ›

It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.

In general, it's better to leave your credit cards open with a zero balance instead of canceling them. This is true even if they aren't being used as open credit cards allow you to maintain a lower overall credit utilization ratio and will allow your credit history to stay on your report for longer.

Most important: Payment history

Your payment history is one of the most important credit scoring factors and can have the biggest impact on your scores. Having a long history of on-time payments is best for your credit scores, while missing a payment could hurt them.

It may seem counterintuitive, but closing a credit card can hurt your credit score in the short term. You may be less likely to spend if the card is gone, but without that information on your credit report, the lender has also lost insight that could help them gauge your reliability as a borrower.

Your credit utilization ratio goes up

By closing a credit card account with zero balance, you're removing all of that card's available balance from the ratio, in turn, increasing your utilization percentage. The higher your balance-to-limit ratio, the more it can hurt your credit.

Negative information typically falls off your credit report 7 years after the original date of delinquency, whereas closed accounts in good standing usually fall off your account after 10 years.