Does Closing Credit Card Hurt Credit Score? Everything You Need to Know

Many cardholders believe that shutting down an unused account is a responsible financial move. However, before you call the bank, you must understand how this decision impacts your credit profile. The short answer is: yes, in most cases, closing a credit account can lead to a temporary or long-term dip in your rating.

Impact on Credit Utilization Ratio

The most immediate effect of closing a credit card is the change in your credit utilization ratio. This metric represents the percentage of your total available credit that you are currently using. It is one of the most influential factors in calculating your FICO score.

For example, if you have two cards with a $5,000 limit each, your total credit line is $10,000. If you owe $2,000, your utilization is 20%. If you close one card, your total limit drops to $5,000, and your utilization instantly jumps to 40%. A higher utilization ratio signals higher risk to lenders, which often results in a lower credit score.

Credit History and Average Account Age

Another critical factor is the length of your credit history. Lenders prefer to see long-term relationships with financial institutions. When you close your oldest account, you may eventually shorten the average age of your accounts.

While closed accounts in good standing may remain on your credit report for up to 10 years, the overall impact on your "credit mix" and account longevity can still be felt. If you are planning to apply for a mortgage or an auto loan soon, maintaining open lines of credit is generally the safer strategy.

When Should You Actually Close a Card?

Despite the risks, there are scenarios where closing an account makes sense. If the card carries a high annual fee that outweighs its benefits, or if having the available credit limit leads to overspending and debt accumulation, shutting it down may be the right choice for your financial health.