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.

While there's truth to the idea that closing a credit account can lower your score, the magnitude of the effect depends on various factors, such as how many other credit accounts you have and how old those accounts are. Sometimes the impact is minimal and your score drops just a few points.

Pay off your credit card debt

“Ideally, if you want to protect yourself, pay every balance down to zero before picking the card you want to close,” says McClary. If your CUR is 0%, it's still going to be 0% when you close a card. No jump in CUR or late payments means no credit score penalty.

The mere act of closing a bank account doesn't have a direct impact on your credit. The Consumer Financial Protection Bureau confirms that the three major credit bureaus — Experian, Equifax and TransUnion — don't typically include checking account history in their credit reports.

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.

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.

Once your credit card is closed, you can no longer use that credit card, but you are still responsible for paying any balance you owe to the creditor. In most situations, creditors will not reopen closed accounts.

A credit card canceled for inactivity may impact you in the following ways: The cancellation may affect your debt to credit utilization ratio, which is the amount of credit you're using as compared to the amount of credit available to you.

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.

Credit experts advise against closing credit cards, even when you're not using them, for good reason. “Canceling a credit card has the potential to reduce your score, not increase it,” says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report.

Is it bad to have a lot of credit cards with zero balance? ›

However, multiple accounts may be difficult to track, resulting in missed payments that lower your credit score. You must decide what you can manage and what will make you appear most desirable. Having too many cards with a zero balance will not improve your credit score. In fact, it can actually hurt it.

Owning more than two or three credit cards can become unmanageable for many people. However, your credit needs and financial situation are unique, so there's no hard and fast rule about how many credit cards are too many. The important thing is to make sure that you use your credit cards responsibly.

Your credit score plays an important role in determining your eligibility for credit, and closing a credit card does have the potential to lower your score. It's important to keep in mind though that the change may not be drastic.

What is the 5/24 rule? Many card issuers have criteria for who can qualify for new accounts, but Chase is perhaps the most strict. Chase's 5/24 rule means that you can't be approved for most Chase cards if you've opened five or more personal credit cards (from any card issuer) within the past 24 months.

For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2023, the average FICO^® Score^☉ in the U.S. reached 715.

Depending on how long you've had the card open, closing it could also negatively affect your average age of open accounts, which also could affect your credit scores. If your scores fall, it could be harder to get a loan for a new car, qualify for a new apartment or get the best interest rate on a mortgage.

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.

Experts generally don't recommend you ever cancel a credit card, unless you're paying for it (such as in the form of an annual fee) and not ever using it. And if this is the case, canceling a card once probably won't hurt you as long as you have a healthy credit history otherwise.

Getting a credit card again that you've since closed is possible, but it's best to contact your card issuer before submitting an application. You might not be able to reapply just yet depending on the date of your last credit application.

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.