Wondering if it’s bad to close a credit card? You’re not alone.
The common belief is that closing a credit card will hurt your credit score, and while this is generally true, there are several factors to consider.
In short: Yes, closing a credit card will likely impact your credit score. At least temporarily. But how bad?
One way to close a credit card with little impact on your credit score, is by paying off all your credit card accounts. And not just the one you plan to close. All of them.
By bringing your balances to zero before closing, you can shield your credit score from impact.
While financial experts often recommend keeping your credit card accounts open, there are valid reasons to close them. Divorce or to avoid excessive annual fees are the main reasons.
Your credit utilization, which measures how much of your total credit is being utilized, greatly impacts your credit score. Using a large portion of your available credit can have a negative impact on your score.
In essence, managing your credit wisely and understanding your credit utilization can help you make informed decisions about whether or not to close a credit card.
So, is it Bad to Close a Credit Card?
Closing a credit card might raise some concerns about your credit history, but the impact isn’t as severe as you might think. Once closed, the account does appear on your reports for up to seven years (if there were negative issues) or around 10 years (for positive aspects). It continues to contribute to the average age of your credit, which is a crucial factor in your credit score.
The bottom line is: closing a credit card account isn’t necessarily bad if done with good reason. Simply having multiple credit cards won’t harm your credit score as long as you manage them responsibly. However, if you decide to cancel a card, it’s wise to first minimize your outstanding balances, ideally reducing them to zero. This approach can help you avoid any negative impact on your credit score.
For a complete masterclass in paying off debts, we recommend listening to Dave Ramsey’s Total Money Makeover.
