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Additional Reading:
- The 5 dangers of applying for credit cards
- Does Applying For Credit Cards Ruin Your Credit Score?
- Does Cancelling a Credit Card Hurt Your Credit Score?
- Why Everyone Should Have a No-Annual Fee Credit Card
- Why Some Business Cards Impact Your Credit Score Less Than Personal Cards
- Does Getting Denied for a Credit Card Impact my Score?
Impact of Applying for Credit CArds
I explained earlier that opening credit cards in the short term will decrease your credit score, but in the long term your credit score could increase if you pay back your debt on time.
However, the impact will not be the same for everyone since there are lots of factors which make up your credit score. So go slow and see the impact to your credit for yourself before applying for lots of cards.
But lots of readers emailed and commented to ask about the impact of cancelling a credit card to their credit score.
How Is Your Credit Score Calculated?
Let’s have another look at how the FICO website says your credit score is calculated. Fair Issac Corporation dominates the US credit score business and issues FICO scores which range from 300 to 850.
According to the FICO website, your credit score is determined by:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of Credit
Fico Score Calculation (Image from MyFico.com)
Impact of cancelling a Credit CArd
The act of cancelling a personal credit card doesn’t impact your credit score by itself. However, cancelling a personal credit card impacts the Amount Owed & the Length of Credit History which could reduce your credit score.
But, applying for more credit cards every time you cancel a credit card could balance things out.
That said, as a general rule, you shouldn’t cancel your oldest cards since it helps your credit score by increasing your Length of Credit History. And cancelling cards with a very high credit limit (compared to the total credit available to you) could also impact your credit score.
Note that cancelling business credit cards (from Citi, Chase or American Express) does NOT impact your personal credit score since business credit cards do not appear on your personal credit report from Equifax, TransUnion or Experian (unless you default on them). So they don’t impact your Amount Owed & the Length of Credit History.
What happens when you cancel a personal credit card?
Let’s see the specific impact to credit scores when you cancel a personal (not business) credit card.
Impact to Amounts Owed (30%)
Your credit utilization ratio (i.e. the amount of credit which you’re using compared to the total credit available to you) will increase every time you cancel a personal credit card. That’s because you have, say, $10,000 less in available credit if you cancel a card with a $10,000 limit.
This impact is MORE noticeable and can cause a dramatic decline in your credit score if you have only a few credit cards (say 2 or 3 cards).
For example, let’s say that Jessica has 3 cards each with a $10,000 limit or $30,000 in total credit available to her ($10,000 X 3). If she cancels 1 card (with a $10,000 limit), she has reduced the total available credit from $30,000 to $20,000 which is a 33% decrease ($10,000/$30,000).
But Mary has 6 cards each with a $10,000 limit or $60,000 in total credit available to her ($10,000 X 6). If Mary cancels 1 card (with a $10,000 limit), she has reduced her total available credit from $60,000 to $50,000 which is only a 17% decrease ($10,000/$60,000).
If Jessica and Mary both have the same amount of debt (i.e. outstanding balances on their credit cards) and all other factors are the same, the impact to Jessica’s score will likely be higher than the impact to Mary’s score.
But the MORE cards which you have (and a higher total available credit), the less likely it is that cancelling one card will impact your credit utilization ratio significantly.
Some folks like to try to transfer the credit from one card to another to prevent their debt-to-credit ratio from decreasing. But I don’t really do that because it is too time-consuming for me and not all banks allow you to transfer credit from one card to another.
Instead, I just apply for new cards which should balance the credit limits which I have lost on cards which I cancelled. If I am cancelling a Chase card and applying for a different Chase card, I usually just call the reconsideration line and explain that I want to cancel a card which I’m not using and ask to be approved for another card which I just applied for. But I usually just cancel cards from other banks and then reapply for different cards.
However, I absolutely would try to transfer the credit from one card to another (issued by the same bank) if I didn’t have many credit cards. Or if the credit limit on the card which I was cancelling made up a significant portion of the total credit available to me.
That said, not all banks report your credit limit to the credit bureaus. Some cards only report the highest balance on the card.
Impact to Length of Credit History (15%)
According to creditcards.com and Equifax, credit cards usually remain on your credit report for 10 years from when you closed them, PROVIDED there was no negative information (like late or non-payment) associated with those cards.
The Length of Credit History or the average age of your credit accounts, will almost always decrease when you start applying (not when you cancel!) for a lot of new credit cards for the 1st time. That’s because you likely have only a few old credit card accounts and applying for new credit cards reduces the average age of ALL your credit cards.
Note that this impact is MUCH more pronounced for younger folks who don’t have a long credit history than for folks with an established credit history. So this is another reason for folks to start off slow and gauge the impact to their credit scores for themselves before applying for more cards.
Did you notice that cancelling a credit card will NOT immediately reduce your Length of Credit History? That’s because your Length of Credit History already decreased when you applied for the card.
The card will remain on your credit report and contribute to your Length of Credit History for 10 years after cancelling, and only then will you see another impact to your credit score. But, you can reduce the impact of the closed cards falling off your credit report in 10 years by applying for new cards to replace the old cards.
However, I wouldn’t suggest cancelling your oldest card because it helps to have a few old cards which you keep for a long time.
I have fee free cards from all the main banks which I plan on keeping indefinitely to help increase the average age of my credit card accounts. This will also reduce the impact of opening and closing credit card accounts.
American Express reports ALL your personal accounts as opened on the same date since your FIRST personal card with American Express.
For example, let’s say that I have a no-fee American Express Hilton card which I opened in 2011. American Express will report all future cards as opened from 2011 even if I applied for them in 2013 or later! This is a great way to increase the average age of your accounts.
Bottom Line
Cancelling your personal credit cards can reduce your credit score. The most important factor is to make sure that you don’t have a significantly higher credit utilization ratio because you cancelled your cards. This usually isn’t an issue to folks who have lots of credit cards with high limits, but it can be an issue for younger folks who are building their credit.
The impact to your Length of Credit History likely won’t be felt until 10 years later. And it may be minimized if you keep on opening accounts to replace the closed accounts which will stay on your credit report for 10 years and then fall off.
Getting a fee-free card, which you keep for a very long time, is a great way to not only increase the Length of Your Credit History, but to also build a long-term relationship with a bank.
Cancelling business credit cards from certain banks will not impact your credit score.
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I have earned and redeemed millions of airline miles and hotel points to travel the world for free. Now I'm blogging to help more people do the same! 
Hi, Daraius
I just applied the SPG card and felt really happy that it was approved. However, the sad and very surprising thing is AMEX only gave me 1000$ CL, which is the lowest one that I have ever got since my first credit card. As I need to spend 5K in 6 months. If I spend 900 $ , pay off it, spend 500 $ and pay off all the debt every month to keep 0 balance. Will this activity on my account affect my credit score?
Thank you very much!
Which fee free card do you keep from AmEx? Hilton card?
Thanks.
I am not a math whiz but I think you mean the ratio will INCREASE not decrease. The
Your credit utilization ratio (i.e. the amount of credit which you’re using compared to the total credit available to you) will decrease every time you cancel a personal credit card. That’s because you have, say, $10,000 less in available credit if you cancel a card with a $10,000 limit.
Isn’t that what he said? “will increase every time you cancel a personal credit card.”
Google hasn’t found me any satisfactory answers but does anyone know whether Chase Sapphire reports your highest balance or your total credit limit to the agencies? What about credit cards with the “visa signature” logo in general? Thanks.
Credit utilization is looked at on an individual card basis and your overall utilization (total used on all cards/total available on all cards). As a general rule I’ve read you should keep your utilization below 30%, so in Mary’s case (6 cards @ $10K each) she shouldn’t go above $3K on any one card or above $18K combined on all cards. One way to keep your utilization rates low is to send a payment in advance of your credit card issuing the monthly statement to stay below the 30% threshold since the statement amounts are what the credit reporting agencies use. As a test I had one card at 90% utilization while all other cards had no charges. My score dropped 50 points that month even though my overall utilization was still below 30%. I paid the 90% card off and my score recovered the following month.
@Jesson – I’d pay off the card as soon as possible to minimize the impact of a high utilization ratio.
@Lantean – I keep the AMEX Hilton card.
@Gomer @David0603 – There was a typo in one instance which is now fixed. Thanks!
@Mel – I’m not sure. The best way to check is to look at your credit report.
@Nunya – A 90% utilization rate will definitely hurt your credit score!
I’ve also noticed that authorized users on an AmEx card get the year of account opening of the primary account holder (at least in my husband’s case). He’s an authorized user on the SPG card I opened in 2007. Where he’s the primary account holder, TransUnion, Equifax, and Experian reports all show him as opening the account in 2007, even though the cards were opened in 2011 and 2012.
Don’t cancel your cards, try to barter your Chase cards for a new Chase credit card signup. Never cancel without trying retention offer or replacing/transferring credit line.
@Jesson – another trick to control the damage to your credit utlization score when you are approved for a lower credit line is to prepay, say $5,000 into the account, that way your credit room is actually $5K as opposed to the granted $1K credit line and you can meet the spend requirement more easily.
Some Business Credit Cards such as the AA business card do show up on your credit history.
@MileHunter – Whoa~~ I never thought about it, wondering whether it is possible to do so. Hopefully it will not trigger the “alarm”.
Thank you very much!
@Mel, CSP reports a limit, at least it does for me. Visa Signature cards used to not report limits because of the NPSL feature of the card, but I believe most of the major issuers have changed that policy now.
@Jesson, your card is only going to report once a month. It will report the balance on your bill. So charging and paying in full multiple times in the month will not affect your credit score. The only thing that will affect your credit score is whatever balance you are carrying on your statement close date. That is what will get reported.
Most cards report statement balance, so you can manipulate your utilization by paying your cards down to whatever you want to report before your statement closes.
Also, as a slight clarification Amex reports new accounts with the month of the new application and the year of the original member since date. While this ins’t a big deal for most people, it can make a slight difference for people with younger credit histories. For example, if your original member date is 2011, and it is near the end of the year, it might make sense to hold off on an Amex app until after the first of the year. An app in December 2013 would report as an account opened in December 2011, while an app in January 2014 would report an account opened in January 2011. You could get an extra 11 months of history by waiting until after the first of the year. Probably not important for most, but those newer to credit or rebuilding can take advantage of that.
I’ve had my Mileage Plus card for over 20 years now and paying $85 annually. I’m not using it nowadays since I got my Club card. I have 12 other credit cards w/ an average age of 6 years. I really want to cancel it but worry that it may hurt my credit score. I don’t think they have a ‘no annual fee’ version that I can downgrade to. Any suggestions?
@Rachel, I don’t think it’s just Amex. I gave two authorized user cards to my fiancee, and she inherited the “credit age” for at least one of those cards. FYI, one of them was FIA Card Services, and the other was Citi.
Which card do you think would be better, United MileagePlus Explorer VISA or Sapphire Preferred MC? I currently have the SP VISA and was thinking about trading places. The signup bonus for SP is 40K, less than the 55K one could get from the United card. So it’s a smaller bonus, but which is the better card? I already have cards with no foreign transaction fee. The only thing I can reason is the SP gives an annual divided of 7% back annually and 2x for dining and travel, whereas United is only 2x for United travel.
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@ETY – I’d personally keep the card with the 20 year history. You could call Chase and ask to either convert the Mileage Plus card to a Club card and then cancel your newer Club card. Or ask for a fee-free card since they may have a fee free card which they don’t publicize.
@Bob – The Chase Sapphire Preferred is a better all-round card with the 2X points on travel and dining, but the United card does have a higher sign-up bonus. So it depends on whether you plan on keeping the card for a while or not.
@ETY There is a no-fee United miles card. It earns 1 mile/$, call Chase to downgrade yours.
I’m a bit confused. If I were to cancel my youngest credit card, wouldn’t that increase “The Length of Credit History” given that it is “the average age of your credit accounts”? Any help would be much appreciated.
@m - The cancelled card will remain on your credit report and contribute to the average age of accounts for 10 years, so the effect would be felt much later.
okay, thank you. that’s interesting. This means that if I were to close an existing card (that has long tenure), there would be no credit impact (aside from credit ratio) for 10 years.
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Hi, this is my first post!
I called Citi to cancel an AAdvantage Visa card, and they offered to convert it to a no-fee Citi AAdvantage Bronze Mastercard. I accepted.
Will this count as a new line of credit and negatively impact my length of credit history, or will it be considered one continuous line of credit? (I as assured that Citi would not make another credit inquiry, and I would retain the same account, just with a different card.)
Thanks!
Hi Daraius,
I was wondering if you knew whether the Fidelity AX card issued by FIA Card Services works the same as other AX credit cards in regards to length of credit history. I currently have a Fidelity AX. If I get another AX will they report that card as being opened when the Fidelity AX was, or will that not work since the Fidelity AX is issued by FIA Card Services instead?
Thanks for all your help!
@Jonathan - Welcome! It will be counted as one continuous line of credit because you downgraded the card.
@Daniel W – I believe it will not work because it has to be an American Express bank (not Citi or FIA Card services) card.
Hi Daraius,
I was wondering if you can help me with a question I have about the Amex reporting you mentioned:
I’m planning to apply for my first Amex (Amex Premier Rewards Gold) and I do not intend to keep it when the annual fee hits. Now assuming I won’t get another Amex until I cancel the Premier Rewards Gold card, will my future Amex cards that I applied for after I canceled the Premier Rewards Gold card then have the old date of my first Amex (the PRG) that I would then no longer hold (say May 2013 if I applied for the PRG tomorrow) or would it be the date of that future application since I did not hold an Amex at the time of that application?
Hope this is somewhat clear.
Thanks a lot!
Jan
Jan – In my experience they backdate to when you 1st had the card, but your experience could be different and things could have changed recently.