Will Closing A Credit Card Account Hurt Your Score?

Updated: March 21, 2024 Author:

Quick answer: Your credit score can drop when you close a credit card. Your credit utilisation will rise because the gap between what you can borrow and spend has narrowed. Keeping an unused or unwanted credit card active can help maintain your credit score at its current level. 

    Why might you close a credit card?

    Whether we’re consolidating debts or just reorganising our finances, many of us feel like closing a credit card is a statement of progress. While no one wants to have to live off of credit cards for the foreseeable future, they certainly do have their uses. 

    One of the main reasons for closing a credit card is wanting to feel in greater control of your level of personal debt. With your finances no on a firm foundation, and the temptation to resort to the credit card removed because it is closed, you can feel like you’re back in control. Others simply choose to close a credit card because they find they use their other cards far more and they don’t see a need to keep them. Reducing the number of payments you have to make each month, for example, is something that is attractive to many who want to streamline their personal admin. 

    Why should you keep an unused credit card?

    If you want to increase your credit score then you will need to find ways to show lenders and credit ratings agencies that you’re someone with a track record of making timely repayments. While you may think that showing you don’t need a credit card is a great way to do that, it actually shows lenders that you now have reduced borrowing potential. They will see this as a sign that your finances are now no longer quite as robust and flexible as they were before. 

    Here are the top three reasons why you may wish to reconsider closing an unused credit card: 

    • Keeping your credit card reduces your overall credit utilisation and widens the gap between what you can borrow and what you typically spend. This will show lenders that your finances are more flexible and robust than they otherwise would be
    • The simple act of having one or more credit cards shows the lenders involved that you can make repayments in a timely manner. So much of building a credit score is about building a trustworth, reliable reputation, and keeping your card open is a major part of that 
    • The longer you have your credit card in use the longer you will be building a score with the lender. This contributes positively to your credit score and allows you to make continual progress as you look to improve your borrowing potential 

    Why would closing a card hurt your score?

    When you close a credit card you’re increasing your utilisation rate and therefore coming closer to having to borrow additional money at short notice. You can think of your currently unused credit card as additional headroom that will allow you to build robust, flexible personal finances that can react to many of life’s uncertainties. 

    If you were to close a credit card today you will then have less available credit you can call on for help tomorrow. This reduces the resilience and flexibility of your personal finances and therefore makes it more likely you will miss payments on other lending agreements if your cashflow contracts. While the impact on your score may not be all that sizable, it will be noted by credit reference agencies. 

    When you close a credit card you no longer feel you need, you will also decrease the average age of your cards. This is an issue as far credit ratings agencies are concerned because you now look like a more junior borrower. People who have not been borrowing from the same lenders for as long will typically score lower simply because they haven’t yet built up the same length of track record. As ever with credit scores, it is so often about showing that you will consistently make repayments on time over a period of many years. 

    How much will your credit score drop?

    The amount by which your credit score drop is largely determined by the following three factors: 

    • The change in your balance-to-limit ratio will determine a major part of your credit score drop. The further the ratio changes the more your score will drop because you have now unwittingly narrowed the gap between what you typically spend and what you can readily borrower without signing a new agreement with a lender 
    • The degree to which the average age of your various credit accounts reduces will also contribute to the amount by which your score drops. This means that you will likely see a much smaller drop if you were cancel a new card that you haven’t had for very long 
    • The final thing you need to factor in is how long you have had the card you are thinking of cancelling. Generally speaking, the longer you have had the card and kept up with the repayments, the greater the positive impact it will have on your credit score 

    What should you do with an unused credit card?

    Keeping an unused credit card and putting a minimum amount of spend on it each month to keep it active is often the best strategic move in terms of maintaining your credit score. You will be able to maintain your utilisation rate, keep increasing the average age of your accounts, and you will also reduce the likelihood that you will need to enter a new borrowing agreement with a lender in the future. All of these things will play a part in maintaining your credit score.