Part of handling credit cards revolves around making decisions about closing them. Prior to picking up the phone to call your credit card company, reflect on the consequences of closing your card on your credit history.

When you close a credit card, the process never raises your credit score. Although cancelling a credit card account may hurt your credit score, it makes sense to close it down. For instance, you can avoid the persuasion of using a credit card for making impulse purchases.

It is also better to cancel it if your card’s offers and benefits are no longer valid and are costing you excess money in the long run.

Your credit score relies on many factors. If you must close an account, avoid closing the oldest ones. The longer it has been open, the healthier it is for your score. If you are young and don’t have a big credit history, closing an account early can signify risk. It also adversely affects your credit score. Hence, you should cancel cards that have high annual fees and interest rates.

Closing a credit card account also has the potential to harmfully affect your utilization ratio. Typically, that’s a factor which evaluates the overall credit score and based on the amount of credit an individual has used against the amount he has available. When you have more credit available and less credit used, this situation greatly benefits your credit score.

Once you have finally decided to cancel a credit card, you need to pay your balance in full. Get in touch with the card’s customer service department and the operators are sure to persuade you to keep your account open. You have a right to be firm but being polite helps you get everything you need for a smooth process. You will have to confirm the operator that your account will be close. The issues will also send you an email to verify that the account is no longer active.

It is true that cancelling a credit card account is likely hurt your credit score. But they key is to strike a perfect balance between responsible credit management and your attempt to enhance your credit score. According to your specific credit situation, as well as your spending habits, low risk cancellations and utilization ratio help you make the best decision.

To put it simply, your credit score could be affected by canceling a credit card in case:

  • Your card has a balance
  • The card has available credit and your other cards don’t
  • It was your first credit card and you have no other active credit cards

Bottom Line

As an individual’s credit report continues to reflect an active outstanding balance for an account, even if the account is closed. The FICO formula is going to include that account in its estimation of utilization rate. The FICO score analyzes both closed and open accounts. As long as your history is on the credit report, it gets included in the FICO score. At some point, credit bureaus eliminate accounts from the report but every credit bureau boasts a unique internal structure to get this done.