
Thinking About Closing a Credit Card? Read This First
Maybe you’re trying to simplify your finances. Maybe you just paid off a card and never want to see it again. Whatever the reason, closing a credit card might seem like a smart move—but it can come with some unexpected consequences.
Before you cut that card in half and call the bank, it’s important to understand how closing an account can affect your credit score, your budget, and even your future loan approvals. The good news? There are ways to avoid the downsides if you plan ahead. Let’s break down what happens when you close a credit card and how to do it the right way.
Why Closing a Credit Card Can Hurt Your Credit Score
A credit card isn’t just a piece of plastic—it’s a big part of how your credit score is calculated. Closing an account can shake things up in ways you might not expect:
1. Your Credit Utilization Goes Up
Credit utilization is how much of your available credit you’re using. If you close a card with a high limit, your total available credit shrinks, making it look like you’re using a bigger chunk of your remaining credit—even if your spending habits haven’t changed.
Example: You have two credit cards with a total limit of $10,000. If you owe $2,000, you’re using 20% of your credit. But if you close one card and your limit drops to $5,000, that same $2,000 balance now puts your utilization at 40%, which could hurt your score.
2. You Lose Credit History
The length of your credit history matters. If the card you’re closing is one of your oldest accounts, it could shorten your average account age over time. This can make you look like a less experienced borrower.
3. Your Credit Mix Could Change
Lenders like to see a mix of credit types (credit cards, loans, mortgages, etc.). If you don’t have many accounts, closing one could make your credit profile look thinner.
The Financial Costs of Closing a Credit Card
A hit to your credit score isn’t the only problem. Closing a card can also affect your wallet in other ways:
You Could Lose Rewards or Cash Back
If your card has unused rewards, travel points, or cashback, you could lose them when you close the account. Always check your rewards balance and redeem anything you can before shutting the card down.
It Might Cost You More to Borrow Later
A lower credit score from closing a card could mean higher interest rates on future loans or credit cards. If you plan to buy a car or house soon, you might want to keep your credit profile as strong as possible.
It Can Mess Up Auto-Pay Bills
If you use the card for automatic payments—like a streaming service, gym membership, or utility bill—closing it could cause missed payments if you forget to update your billing info.
When Closing a Credit Card Does Make Sense
There are times when closing a card is actually the right move. For example:
✅ The card has an expensive annual fee, and you don’t use it. If you’re paying $100+ per year for a card you never use, it may not be worth keeping. But first, ask if the issuer can downgrade you to a no-fee version.
✅ You’re struggling with overspending. If having an open credit line is too tempting and leading to debt, closing the card might help you stick to a budget.
✅ You’ve already got plenty of other credit. If you have multiple other cards and a solid credit history, losing one won’t hurt as much.
How to Close a Credit Card the Right Way
If you’ve decided that closing the card is best for you, follow these steps to avoid unnecessary damage to your credit and finances:
- Pay Off the Balance First – Even if you close the account, you’ll still owe whatever balance is left. Make sure it’s at zero before shutting the card down.
- Use or Transfer Any Rewards – Check for cashback, airline miles, or points, and redeem or transfer them to another account before canceling.
- Update Auto-Pay Accounts – Switch any recurring payments tied to the card to another account so you don’t accidentally miss a bill.
- Call the Credit Card Company to Close It – Simply cutting up the card isn’t enough. Call the issuer and ask for confirmation that the account is closed.
- Check Your Credit Report – About a month after closing, review your credit report to make sure the account shows up as “closed by consumer” rather than “closed by issuer” (which can look worse to lenders).
What If It’s Too Late?
If you already closed a card and saw a drop in your credit score, don’t worry—it’s fixable. Here’s how to bounce back:
- Lower Your Credit Utilization – If your available credit shrank, focus on paying down balances to keep your credit usage low.
- Build Credit with Other Accounts – Use your remaining credit cards responsibly to maintain positive payment history.
- Consider Opening a New Card – If it makes sense, opening a no-fee credit card could help restore lost credit availability. Just be sure to use it wisely.
The Bottom Line
Closing a credit card isn’t always bad, but it’s not as simple as just saying goodbye. It can impact your credit score, make borrowing more expensive, and even cost you rewards. If you’re thinking about closing an account, make sure you understand the hidden costs first—and, if possible, take steps to protect your credit before pulling the plug.
Sometimes keeping a card open, even if you don’t use it, is the best move. But if closing it makes the most sense for you, doing it the right way can help you avoid unnecessary financial headaches.
By Admin –