Does Cancelling a Credit Card Hurt Your Credit Score?

February 17, 2012 by Sarah, BSN, RN

Does cancelling a credit card hurt your credit score? Many people often fear that cancelling that credit card they no longer use will harm there credit score. So what is the truth? Should you cancel that old unused card, or keep it? Here is the low-down:

Does Cancelling a Credit Card Hurt Your Credit Score?

It is true that cancelling a credit card could temporarily lower your credit score rating by a few points. However, this is only going to be temporarily, and shouldn’t be too dramatic in most cases. In fact, I myself have closed over 10 credit cards or so in the last 10 years, and I keep a consistently high credit score.

As far as the credit history report, it will generally just show up that the account was closed. It will stay on your credit history report (including the balances you carried, if you paid it on time, etc.) for years afterwards. So don’t just close a card thinking it won’t show up on your credit report, it likely will for at least a few months, and probably several years.

Will Keeping a Credit Card Active Help Your Credit Score?

Generally speaking, the more companies that extend you loans, the better your credit will look to potential loan companies. So if you have a total of $20,000 in credit card limits (but don’t have any balance on the cards), this tends to help your credit score and improve your chances of getting loans.

It makes it appear as if you are credit worthy, and responsible with your money. Therefore, if you can exercise discipline and not run up your accounts, it may be a good credit move to keep old cards active and in a safe place, and simply never use them. Some people suggest shredding up the cards and never cancelling them. I would not do that, as you never know if anyone can piece the cards together and get your numbers. Instead, I would keep it in a locked drawer or safe place that only you or your spouse knows about.

Conclusion: To Cancel an Unused Card or To Keep it–that is the question!

If you don’t like the card and don’t plan on using it ever, ditch it. It may slightly lower your score, and then again, it may do nothing. I wouldn’t worry about it.

On the other hand, if you like the credit card, you may consider keeping it active and simply never using it. This way, you always have it there in case of emergency, and it will reflect well on your credit score rating.


5 Ways to Help (or Hurt) Your Credit Score

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Getting the best interest rate on a loan comes down to one important number: Your credit score.

A credit score is a three-digit number generally ranging from 300 – 850. The higher your score, the better credit risk lenders think you are. And that means you'll pay lower interest rates on loans. That number can go up and down based on the way you handle your financial commitments.

The best way to improve or maintain good credit is to pay your bills on time. Payment history affects about 35% of your score.

If you have been managing credit for only a short time, new accounts lower your average account age (how old the account is). That will have a greater effect on your score than if you don't have a lot of credit information.

Check your credit report annually. Some consumer advocate group studies have found that up to one out of every four credit reports contains a serious error that could stop you from getting the best terms on a loan. At annualcreditreport.com, the reports are available for free once a year.

A card that you've held for a few years is better for your score than one you've just obtained. Just don't use them. You can slowly close them over time.

If you don't have a credit card, get one and use it responsibly so credit bureaus can begin to track your payment history.

Your score is affected by the number of times credit card companies request your credit report. It can look like you are desperate for credit, not that you just want 10% off on your jeans.

Keep credit balances at 25% or below of your total credit limit. Maxing out available credit will reflect poorly on your score.

It probably won't raise your score. The ideal mix is between secured loans, such as home loans or car loans, and unsecured loans like credit cards.

Lenders like to see that you can manage different types of debt, from major credit cards like Visa and MasterCard, to department store cards and installment loans, such as a car loan.

A score distinguishes between shopping for a specific type of loan and a search for new credit lines, in part by the length of time over which credit inquiries from lenders take place. Compare rates, but try to pick a loan within, say, a two-week period.

Have You Checked Your Credit Lately?

By law, you are entitled to at least one free credit report annually. This is different from your credit score. The credit-reporting agencies that offer your credit report free also offer online resources for ordering copies of your credit score — but most charge a fee for that additional information. For details, contact the agencies directly:

Best Practices for Credit Monitoring

Knowing your credit activity is key to managing your credit and protecting yourself from fraud and ID theft. CreditCheck Monitoring by Experian ® is a great way to help you easily review and monitor your credit online. CreditCheck Monitoring includes these great benefits:

  • Receive email alerts of critical changes to your Experian credit file .
  • Receive unlimited access to your Experian Credit Report and Score so you can make sure everything is current and accurate.
  • Get a real-time look at your PLUS Score and understand how lenders may view your credit.
  • Detect potential errors that may appear within your credit report, as well as unauthorized activity that may be a sign of fraud.
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Won’t canceling credit cards hurt my credit score? (Hint: No)

I’ve gotten this question a number of times in different forms, and there seems to be a lot of confusion on this issue.

From one reader: How did you cancel all these cards without hurting your credit score?

Great question! Here’s my response:

Canceling credit cards won’t hurt your credit score per se. What it will do is change a few factors on your credit report that *do* affect your credit score.

For example, average age of open credit lines and your overall available credit and consequent credit utilization will change – and those are two factors that are directly taken into consideration when calculating your credit score.

When we’re talking about opening rewards cards like these for the signup bonus/other immediate bonuses, and canceling within a year to avoid the annual fee/to

churn and repeat the process, canceling the credit card in question is almost always *good* for your credit score – not bad.

Why? Let’s say you’ve had two credit cards open for 10 years each, with a total credit limit of $50,000. Say you have $25,000 in debt on your credit cards (which like, should never, ever happen, but for sake of the demonstration let’s assume a minor catastrophe occurred and you’re homeless on the street with an amputated leg or something). Your average age of open credit account would therefore be 10 years, total credit limit $50,000, and credit utilization 50% ($25k/50k).

Now let’s say you open one of these cards, with a credit limit of $25,000. Now your average age of open account instantly jumps down to 6.66 years (0+10+10/3), but your credit limit jumps up to $75,000, and your credit utilization down to just 33% ($25k/75k).

One thing here is good, and one thing is bad – average age of your credit lines is really important, so that going down will drop your credit score a bit. Credit utilization is also really important, so that going down to 33% instead of 50% is a really great thing.

There are some other minor factors that come into play here too, like credit inquiries (bad to have a lot, but doesn’t do much with just a few, and is wiped out in 2 years from your credit report and only temporarily drops your score a few points), and total # of credit accounts (including both open and closed accounts – the more the better, so by dint of opening a card alone, even if you close it immediately afterwards, you only serve to help this metric), but they’re not too significant and in the end tend to balance each other out.

In any case, in this hypothetical scenario, we can see that by opening the credit card, we definitely impact our credit score. For better or for worse – that depends on our individual metrics. If our credit utilization was really high before, and we open a card with a high credit limit, it’s likely to actually improve our score.

However, since we’re all hopefully financially responsible people here, chances are we don’t have any credit utilization, and so opening a card is likely to *slightly* hurt our score while it’s open, since it brings down the average age of our open credit accounts.

That said, closing the account would then therefore *benefit* our credit score, as it would increase our average age of open accounts back to what it was before.

So if you’ve followed this giant delineation, you’ll probably realize that all of this is moot: basically all the impact on your credit score that occurs by your opening the card is reversed by your closing the card. So chances are your credit score before and after the process will be basically exactly the same. The only difference is you’ll have traveled to some epic foreign country for free in the interim time or have thousands of extra dollars in your pocket.

(Note: the only two things that *do* stay on your record after this process, and aren’t entirely reversed, are credit inquiries and total # of credit accounts. Again, credit inquiries are slightly bad, but still totally temporary, and completely disappear in 2 years, and total # of credit accounts is *good*, and goes up every time you open a card, and even if you close it I believe it still stays on your record for at least 5 years, so essentially, in the long run, opening a ton of credit cards will actually *help* your credit score a bunch, not hurt it)

tl;dr: Your credit score couldn’t give any fewer fucks about you opening and closing credit cards. Go you!


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