Is it Bad to Cancel a Credit Card

is it bad to cancel a credit card

In the financial world, the decision to cancel a credit card is one met with mixed opinions and a fair share of misconceptions. Many consumers ponder over the question, “Is it bad to cancel a credit card?” without fully understanding the implications such a move might have on their financial health, particularly their credit score. It’s a decision that shouldn’t be taken lightly or made impulsively due to frustration with high fees or a momentary desire to curb spending.

Understanding the myriad nuances associated with credit card closure is essential for maintaining a healthy credit profile. The impact of such a financial move extends beyond the immediate aftermath, influencing credit scores and financial opportunities for years to come. This article aims to demystify the process, providing a comprehensive look into the effects of canceling a credit card, strategies to mitigate potential negative consequences, and smarter alternatives to outright cancellation.

Among common misconceptions is the idea that canceling a credit card you no longer use is inherently beneficial, as it seemingly simplifies one’s financial portfolio and reduces the temptation to accrue debt. However, the reality is far more complex, intertwining with factors like credit utilization ratios, the length of credit history, and the individual’s broader financial goals and habits.

Therefore, before reaching for the scissors to cut up your plastic, it’s crucial to arm yourself with knowledge. This article will navigate through the immediate and long-term impacts on your credit score, offer strategies and alternatives to closure, and provide guidance on how to responsibly manage the decision to cancel a credit card, ensuring you make an informed choice that aligns with your financial well-being.

Introduction to Credit Card Closure and Common Misconceptions

Credit card closure is often seen as a straightforward solution to various financial situations, whether it’s a step towards simplifying financial dealings or a reaction to unfavorable terms and conditions. However, this decision is surrounded by misconceptions that can lead to unintended consequences for one’s credit health.

One prevalent myth is that closing an old or unused credit card automatically improves your credit score. This is far from the truth; in fact, canceling a credit card can sometimes harm your credit score more than it could ever help. The reasons behind this counterintuitive outcome include changes in credit utilization and the shortening of credit history, both of which are significant factors in calculating your credit score.

Another common belief is that if a credit card is not being used, it does not impact one’s financial profile. Yet, every open credit account contributes to your overall credit limit, and its management (or lack thereof) reflects in your credit report. Active management of credit cards, even those not regularly used, can demonstrate financial responsibility and positively influence credit scores over time.

Understanding How Cancelling a Credit Card Affects Your Credit Score

The impact of cancelling a credit card on one’s credit score can be substantial, primarily influenced by two factors: credit utilization ratio and length of credit history.

Aspect of Credit Score Description Impact of Card Cancellation
Credit Utilization Ratio Measures the amount of credit you are using compared to the credit available to you. A lower ratio is better for your score. Cancelling a card reduces your total available credit, which can increase your utilization ratio and potentially lower your score.
Length of Credit History The age of your accounts, with longer histories being more beneficial for your credit score. Closing an old account may shorten your average account age, which can negatively impact your score.

It’s important to assess your personal credit situation before deciding to cancel a card. If your credit portfolio consists of numerous cards, the impact might be minimal. However, for those with fewer credit accounts or those new to credit, the effects can be more pronounced.

The Immediate Impact of Credit Card Closure on Your Credit Utilization Ratio

Cancelling a credit card has a direct and immediate effect on your credit utilization ratio, an important component of your credit score. This ratio calculates the amount of credit you’re using versus the total available credit you have across all accounts. Ideally, keeping this ratio under 30% is advised; however, closing a credit card decreases your available credit, which can inadvertently increase your utilization percentage.

For instance, if you have two credit cards—each with a $5,000 limit—and you’re carrying a $2,000 balance on one, your utilization ratio is 20% ($2,000 of $10,000). Closing one card would leave you with a $2,000 balance on a $5,000 limit, shooting your utilization up to 40%, which can negatively affect your credit score.

Strategically managing your credit utilization ratio before and after closing a card is pivotal. Paying down balances on other cards or asking for an increase in credit limits on remaining cards can help mitigate the adverse effects on your credit score.

Long-term Effects of Cancelling a Credit Card on Your Credit History

While the initial focus often lies on the immediate impact of credit card cancellation, it’s crucial to consider the long-term effects, particularly concerning one’s credit history. A longer credit history can contribute positively to your credit score, as it provides a more extended track record of financial responsibility.

Closing an old credit card account can significantly shorten your credit history, especially if it’s your oldest credit account. This change can make it more challenging for lenders to assess your risk as a borrower since there’s less historical financial behavior to review. Consequently, this might affect your ability to secure loans or favorable interest rates in the future.

To preserve the length of your credit history, consider keeping older credit card accounts open, particularly those without annual fees. If you must close an account, prioritize newer ones or those with unfavorable terms.

Strategies to Mitigate Negative Effects on Your Credit Score When Closing a Card

If you’ve decided that closing a credit card is the right move for your financial situation, there are several strategies you can employ to minimize the negative impact on your credit score:

  • Pay down balances on other cards: Reducing outstanding balances can help lower your overall credit utilization ratio.
  • Increase credit limits on existing accounts: Ask other credit card issuers if they’re willing to increase your credit limits, which can also help keep your utilization ratio low.
  • Consider the timing of your application for new credit: If you plan to apply for a loan or another credit card, it may be wise to postpone closing any accounts until after you’re approved.

These steps can help you manage the potential downsides of closing a credit card and maintain a healthier credit profile.

Alternatives to Cancellation: When to Consider Downgrading Instead of Closing

Before you decide to cancel a credit card outright, consider if downgrading to a card with no annual fee or better terms might be a more advantageous option. Many issuers allow cardholders to switch to different cards without closing the account, preserving your credit line and account age. This can be particularly beneficial for cards that are older or have high credit limits.

Downgrading can offer the best of both worlds: retaining the beneficial aspects of your credit history while aligning with your current financial needs and avoiding detrimental fees.

How to Properly Close a Credit Card Account to Minimize Financial Impact

To close a credit card account responsibly and with minimal financial impact, follow these steps:

  1. Pay off the balance: Ensure the card has a $0 balance before proceeding.
  2. Notify the card issuer: Contact the issuer to inform them of your decision to close the account. Follow up in writing, and request a confirmation letter for your records.
  3. Check your credit report: After a few weeks, verify that the account is reported as “closed” on your credit report.

Following these steps can help ensure the process is smooth and does not lead to unintended financial consequences.

Dealing with Annual Fees and Rewards: Evaluating the Cost-Benefit of Keeping the Card

When considering whether to keep or cancel a credit card, weigh the costs against the benefits. For cards with annual fees, calculate if the rewards or benefits (such as travel perks or cashback) offset the fee. If the card is costing you more than you’re gaining, it might be time to reconsider its place in your wallet.

For reward points or miles, make sure to redeem them before closing the account, as you’ll likely lose those rewards upon cancellation. Sometimes, the value of these rewards can make it worthwhile to keep the card open, at least until you can fully take advantage of the benefits.

Rebuilding Your Credit Score Post-Cancellation: Essential Steps and Strategies

If cancelling a credit card has negatively impacted your credit score, focus on rebuilding it with these steps:

  • Maintain low credit balances: Keep your utilization ratio low by paying off balances in full each month.
  • Pay on time: Timely payments are critical for a good credit score. Set reminders or enroll in automatic payments to avoid missed deadlines.
  • Diversify your credit: Consider other types of credit, like an auto loan or a secured credit card, to show responsible credit management across different accounts.

Taking proactive steps to demonstrate responsible credit use can gradually restore and even improve your credit score over time.

Conclusion: Making an Informed Decision to Cancel or Keep Your Credit Card

Deciding whether to cancel a credit card is a significant financial decision with both immediate and long-term ramifications. Armed with a deeper understanding of how credit card closure affects your credit score, credit history, and overall financial health, you can make a more informed choice that aligns with your financial goals.

Before cutting up your credit card, consider alternatives such as downgrading to a card with lower fees or negotiating better terms with your issuer. Be sure to assess the full scope of benefits versus costs, taking into account annual fees, rewards, and the impact on your credit score.

Ultimately, the decision to close a credit card should be strategic, factoring in your financial situation, goals, and the potential consequences. By taking a measured approach, you can manage your credit cards in a way that supports your financial well-being.

Recap: Main Points of the Article

  1. Misconceptions about Credit Card Closure: Clearing up common myths around credit card cancellation and its impact on financial health.
  2. Effect on Credit Score: Understanding how closing a card can affect credit scores through changes in credit utilization ratios and credit history length.
  3. Strategies to Minimize Negative Impact: Practical tips to lessen the adverse effects of card closure on your credit score.
  4. Alternatives to Outright Cancellation: Exploring the benefits of downgrading cards instead of canceling them.
  5. Proper Closure Techniques: Steps to responsibly close a credit account to minimize financial repercussions.
  6. Evaluating Annual Fees and Rewards: Analyzing the cost-benefit of keeping versus canceling a card.
  7. Rebuilding Credit Score Post-Cancellation: Strategies to improve your credit score after closing a credit card account.


  1. Will cancelling a credit card hurt my credit score?
    It can, particularly if it increases your credit utilization ratio or if the card is one of your older accounts, thereby shortening your credit history.
  2. How can I close a credit card without damaging my credit score?
    Aim to pay down any balances on other cards first to maintain a low credit utilization ratio and consider whether you can consolidate credit limits onto another card.
  3. Are there any benefits to closing a credit card?
    Simplifying your finances and removing the temptation to accumulate debt are potential benefits, but these must be weighed against the possible credit score impact.
  4. What happens to my rewards when I close a credit card?
    Typically, you’ll lose any unredeemed rewards, so it’s advisable to use them before closing the account.
  5. Can I downgrade my credit card instead of cancelling?
    Yes, many issuers allow you to switch to a different card with more favorable terms or no annual fee without closing your account.
  6. How long does a credit card closure stay on my credit report?
    The account itself can remain on your credit report for up to 10 years as part of your credit history, but the impact on your credit score might diminish over time.
  7. Is it better to close a credit card with an annual fee or keep it open?
    Evaluate if the benefits received from the card outweigh the annual fee. If not, consider closing or downgrading it.
  8. Do I need to physically destroy the card when I close the account?
    While not a requirement, destroying the card can prevent fraudulent use and provide peace of mind.