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 score is based on the average age of all your accounts, so closing the one that's been open the longest could lower your score the most. Closing a new account will have less of an impact.

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.

When you close a credit card, you lose the available credit limit on that account. This increases your overall credit utilization ratio, or the percentage of your total revolving credit you're using at any given time.

When an account is closed, the amount of available credit decreases, which impacts your credit-utilization ratio — the amount you owe as a percentage of your total available credit. This ratio accounts for 30% of your credit score. Keeping your balances around 30% or less of your available credit is best.

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.

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.

Having a card account closed by the issuer can hurt your credit scores. Use your cards regularly to avoid it.

What is the average credit score? The average FICO credit score in the US is 717, according to the latest FICO data. The average VantageScore is 701 as of January 2024. Credit scores, which are like a grade for your borrowing history, fall in the range of 300 to 850.

Technically, you could close a card and apply for another one immediately after. However, it's best to wait at least 90 days between credit card applications, especially if you closed a card and are applying for a card with the same issuer.

How much do closed accounts affect credit score? ›

If your closed account shows late payments, missed payments or balances going to debt collections (even if this information is reported inaccurately), it can negatively impact your credit score for up to seven years.

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.

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.

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.

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.

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.

Close your account with no penalty – If a payment is inching closer to 30 days passed due, we encourage customers to close their account so it does not negatively impact their credit score. There is no termination fee to close your account early. You loan will still show on your credit report as paid off and closed.