Closing Your Credit Card Account Can Hurt Your Credit Score

vishenda · #1 (**permalink**) 01-19-2007, 10:22 AM

Closing a credit card account can occasionally be good for your credit score, or for your resolution to stop using credit cards, but it can also hurt your credit score.

Approximately 15% of your credit score is based on the length of your credit history, so if you cancel older accounts, you can effectively shorten the length of your credit history, and that can lower your credit score.

In addition to shortening the length of your credit history, by cancelling a credit card account, you may change the ratio of used credit to unused credit, which accounts for approximately 30% of your score, and that can ding your score as well if you're carrying a balance on your other cards.

If you're considing closing a credit card account, make sure you understand how it may affect your overall credit score.

disneysteve · #2 (**permalink**) 01-19-2007, 10:53 AM

All good points. Generally, it is better to pay off the card and forget about it, but not to cancel the account, especially if you've had it for a long time.

PRICEPLUS · #3 (**permalink**) 01-19-2007, 03:03 PM

Disneysteve, you are absolutlely correct. Length of credit history is important!

#4 (**permalink**) 01-19-2007, 10:13 PM

I had two cards, one at the time at 6 years, the other at two. credit score from FICO showed an "average age" of 4 years.

canceled the second, "average age" went up to 6.

score went up. (mind you I didn't / don't carry a balance, nobody should)

information based not on a myriad of opinions out of netland but personal, real experience.

just sayin.

veronak · #5 (**permalink**) 01-20-2007, 06:00 AM

When I paid off my cc's my score went up to 700s, then I closed a car that I had an anual fee and it dropped almost a 100 points

but right now I do not care, I'm not looking to make any big purchases this year. I also have another card that I intend to cancel

MonkeyMama · #6 (**permalink**) 01-20-2007, 06:54 AM

I cancel all my cards not used. mostly I am worried about potential theft. Can't steal if it doesn't exist.

My credit score is in the 800s.

The last one I closed because it had an annual fee and it was my oldest card. At this point I have established such good credit it matters little. I always found this advice somewhat silly - very dependent on your situation. If your credit is bad and you are working hard to get it up, don't cancel a card. If you credit is so-so and you need it in the near future, don't cancel a credit card. VERY important advice.

BUT If you are paying an annual fee and your credit is good and you are not working on buying a home or finance a car in the near future, that is just silly not to cancel it, if it has a fee or whatnot.

I think the point is know what affects your score and be careful. But in all situations closing a card does not spell doom. If you have a high fee I wouldn't necessarily just blindly keep it in fear of credit doom.

poundwise · #7 (**permalink**) 01-20-2007, 09:47 AM

Can? Yes. But not necessarily.

Also, 'can' may be the short term result but, again, not necessarily the long-term.

Can closing an account benefit your score? Yes, it can. If it doesn't negatively distort your debt to available ratio and if it has a positive or negligible effect on your length of credit history average.

There is some amount of foolishness that holds on to multiple cards with zero balances and no intent to use them, IMO.

disneysteve · #8 (**permalink**) 01-20-2007, 09:53 AM

Quote:

Originally Posted by poundwise

There is some amount of foolishness that holds on to multiple cards with zero balances and no intent to use them, IMO.

I agree. It seems that some people make moves strictly based on how it will influence their score, regardless of whether or not it makes sense it the long run.

Even something that has a negative impact on your score doesn't change it permanently. The effect dwindles over time.

kv968 · #9 (**permalink**) 01-20-2007, 10:59 AM

I'm in kind of a catch-22 with this. My credit wasn't the best after a divorce years back and I applied for a cc with a fee ($4/month) since I couldn't get any other. Now that my credit has somewhat improved over the years (up to around 690), I still can't really get rid of the card because one of the factors keeping my score low is length of credit history, or lack thereof (I guess having a house and cc's for 7 years while married doesn't seem to add much to "credit history", but that's a different story).

Since that's the only card I've held since my divorce, cancelling it would all but wipe out whatever "history" they have me down as having in that aspect. I've talked to the cc company (yes, Capital One) occasionally about dropping the fee but I'm always told that "...there's currently no programs to do that". I've had them lower my interest rate but can't get them to concede on the fee. I know I could threaten them with going to a different cc company but I don't really carry a balance or use it all that much. Besides, I still wouldn't be able to cancel the card if I did switch because once again of the credit history thing.

disneysteve · #10 (**permalink**) 01-20-2007, 11:55 AM

kv968 - The question you need to ask yourself is what you needs for credit are in the near future. If you won't be shopping for a car, a home, etc., it may make more sense to get rid of that card that is costing you $48/year. Yes, your score may take a hit in the short term, but it would gradually recover and you'd save $48/year.

Ima saver · #11 (**permalink**) 01-20-2007, 12:38 PM

I have a bunch of cards, but I don't use them ever. I just keep them in a lock box.

#12 (**permalink**) 01-20-2007, 12:44 PM

Quote:

Originally Posted by poundwise

There is some amount of foolishness that holds on to multiple cards with zero balances and no intent to use them, IMO.

very true

I oddly enough find myself on the other side of the argument. I only carry one because it's all I ever use but after CapOne hassled me with their "no hassle" rewards card last fall (the card didn't work for about a week while I sorted out the mess), I find myself thinking it probably wouldn't be a terrible idea to have a second.

I just don't know who to go with. Guess I better start doing some research.

kv968 · #13 (**permalink**) 01-20-2007, 01:24 PM

Quote:

Originally Posted by disneysteve

kv968 - The question you need to ask yourself is what you needs for credit are in the near future. If you won't be shopping for a car, a home, etc., it may make more sense to get rid of that card that is costing you $48/year. Yes, your score may take a hit in the short term, but it would gradually recover and you'd save $48/year.

There may be some car and home shopping in the not-too-distant future so I'm just going to suck up the fee. After seeing that there's "...not sufficient credit history" as it is, even after getting a mortgage in 93 and cc's since before then, I don't want to jeopardize what little "history" I'm obtaining now for just $48/yr.

poundwise · #14 (**permalink**) 01-20-2007, 01:25 PM

Quote:

Originally Posted by rexdart

I find myself thinking it probably wouldn't be a terrible idea to have a second.

I, personally, like the idea of having two credit cards. Both for the reason you identify and others. I presently am still assaulting my debt, however, I ultimately am working towards being debt free and I intend, from that point, to hold two (and only two) credit cards on which I will not carry balances.

MonkeyMama · #15 (**permalink**) 01-21-2007, 07:46 AM

Bummer. I was going to say can you get your fee lowered then? I guess they know when they got you between a rock and a hard place. In your situation I See why you want to hang on. Just don't pay that fee forever.

A mortgage or a car payment will do wonders for your score if you make your payments timely. Good Luck!

I am with you poundwise - my dh is really into only carrying 1 card, 1 card ONLY - yet he has been stranded with a card not working due to overzealous fraud protection. I always carry 2 - 1 for backup. Doesn't hurt the FICO I am sure.