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Credit Scores: Does Cancelling a Credit Card Hurt Your Credit Score?

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Credit Scores:  Does Cancelling a Credit Card Hurt Your Credit Score?

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Additional Reading:

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
Cancel Credit Card Credit Score
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.

 

Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

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Also, my husband has had an Amex Hilton Honors card since 1994 and I am an authorized user. Sure enough, when we got the Amex Gold card last year, it said ‘Member since 94’ on the front.
However, the best I can tell looking at my credit report from Bankrate is that they count the Gold card as 1 year old when figuring in the average age of accounts.
Any thoughts? It would be GREAT if we could get new AmEx cards that counted as 25 years old immediately!!

Ok, I understand a closed account will continue to impact your score for ten years–but I’m unclear on something: let’s say you close an card after having it for one year. For the next 10 years, does it always count as a 1 year-old account toward the average? or does it continue to ‘get older’ and progressively average in as 2 yrs-old, 3 yrs-old, etc?

A family of each have a capital one venture card for 6 yrs. Should I cancel the card or retain and get each of us another card ( looking for a travel miles card) . Keep the card and get each another card . Any suggestions. Got the delta sky miles and the citi AA dvantage platinum Select in the mail recently. Any help.

Hello

I recently opened a credit card through citi bank (Brandsource) and ive only had it for 6 months now and was wondering if it was a good idea to cancel since i dont use it. I have a 1600 dollar credit line and i dont use it. I was wondering if it was a good idea to just cancel it or just keep it? It dosnt have a annual fee.

It has been over two years since I received 50,000 bonus signup points for a SouthWest Chase Card. I still have one of them open. How long do I need to wait to reapply after canceling this card?

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