Why Canceling a Credit Card Can Hurt Your Personal Credit Score
It’s a great feeling when you finally pay off a credit card! 
Some people pay it off and immediately cancel the account so they are not tempted to run it up again. Or they cancel it because the interest rate is high and their credit has improved enough that they can qualify for a low-interest credit card. Or maybe they just now have so many credit cards they don’t need it anymore.
Whatever the reason may be, there are some very good reasons why you should NOT cancel that card!
Did you know that canceling a credit card can drop your credit score by as much as 20-40 points!
The 2 Main reasons why your credit score can drop
Credit Utilization Ratio:
It’s important to understand that credit utilization makes up 30% of your total FICO score. Credit utilization is the second largest percentage, next to payment history so if you have a higher amount of debt than your available credit limit, your credit score will be penalized.
Length Of Credit History:
Another significant factor in calculating credit scores is the length of credit history (10%). The older your credit history is, the stronger your credit score will be.
You should avoid canceling old credit cards if you can. I have an old JC Penny card that I’ve had since I was 18 years old! Nearly 30 years! I don’t shop as much as I used to there, but every few months I go and buy some cosmetics there. I IMMEDIATELY pay the credit card as soon as I get home.
My sole reason for buying the cosmetics THERE is to keep the card open and active. Over the years they have decreased my credit limit since I don’t buy more than $75 worth of cosmetics every few months. But my reason for keeping it is its age.
Consider This Before Canceling Your Credit Card(s)
Why Are You Canceling
What is the real reason why you want to cancel a card? Is it
because of a high-interest rate? Did your issuer increase your rate? In this case, you may consider calling up your credit card company and negotiating for a reduced APR. If you have been a long-time customer with a good payment record, your issuer is more likely to grant your request than to lose you.
You can also avoid paying the interest rate fees by getting in the habit of paying off your credit card balances in full each month. Use that credit card for small purchases, thus making it easy to pay it off.
Also since it’s not a card you will use often, set it up on automatic payment. Or do like I do. As soon as I get home, I take the receipt to the computer and use bill pay to send out a payment.
Just want to get rid of the card no matter the cost to your credit score?
If you still feel that losing a few points from your credit score would be better than keeping that card. Make sure to do the following:
- Pay it off. Make sure that you have no unpaid balance left in your account.
- Increase your credit limit. Call your other credit cards and see if they are willing to increase your credit limit so your credit utilization remains below 30%
- Notify all signers. If anyone else is a signer on that card. Make sure you tell them you have closed it so that they don’t accidentally charge something on a closed account.
- Good credit won’t be affected. If your credit score is good, closing an account will hurt you less than someone with bad credit closing an account that may be giving them much needed points.
