Will Closing a Credit Card Account Affect My Credit Score Negatively?

Reader Question: "I have recently paid off a couple of credit cards and I plan to close two of them. When closing a credit card account affect my credit score in a negative way? I don't mind leaving the accounts open if it's necessary to keep my score up."

It has always been my opinion that people should close their credit card accounts if and when they feel necessary -- regardless of how it affects your score. That is my personal feeling on this subject. You don't have to be an industry insider to recognize the cozy relationship between the card companies and the credit agencies. They would have us believe that you need credit cards to maintain a good score, because it serves their own interests. But that is simply not true.

Granted, using a credit card wisely is one of the easiest ways to establish and maintain a good credit score. But you should not feel compelled to keep any accounts open solely for credit scoring purposes. To put this all in perspective, we should take a look at the FICO credit-scoring chart below.



You can see that the length of your credit history accounts for roughly 15% of your overall score. In most cases, the length of your history dates back to the first account you opened -- whether that was a credit card, a car loan, or some other form of financing. So by that logic, closing your oldest credit card account could shorten the length of your history.

How this affects your score will depend on the other factors shown in the chart above. For example, if you pay all of your bills on time and maintain low balances on your credit cards (relative to the limits on those cards), then the effect of closing your accounts will be minimized.

Here is what you should take away from all of this:

The Result of Closing Credit Accounts

It's impossible to predict what will happen to your score when closing a card out. If you close your oldest account, it will affect you more than closing a newer account, and it could possibly lower your score as well. But you should not feel trapped into keeping the accounts open simply to avoid hiccups within the credit scoring model.

If you need to close those accounts for some valid reason, then go ahead and do it. If you need your score to stay where it is now (as much as possible, anyway), then you might want to hold off on closing those accounts for the time being.

You should also research the concept of "utilization ratio," which is a comparison between you available credit limits and the amount you are using. This ratio will also be affected by the closure of one or more accounts. You can learn more about it in the article below.

Does Canceling Credit Cards Improve Your Credit Score?

In the end, this is a decision that only you can make for yourself. All I can do is explain how closing an account may affect your credit score in the long run. It could certainly have an effect, but it's only one factor of several that go into the scoring models.