Published in: Credit Cards | Aug. 27, 2019

Could Canceling Credit Cards Hurt Your Credit Score?

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The quick answer: In some cases, yes.

hip, bespectacled young man looking straight at you while brandishing a small white card

Image source: Getty Images

If you have a credit card you rarely use, or one that’s charging you a costly annual fee, you may be inclined to cancel it. After all, the more credit cards you have in your name, the greater the temptation to overspend, and the greater your chances of having one of those cards wind up in the wrong person’s hands. But before you rush to cancel a credit card, realize that doing so could impact your credit score for the worse. 

How credit scores are calculated

To understand the impact of canceling a credit card on your credit score, you’ll need to understand how that number is derived. There are five factors that go into calculating your credit score:

  1. Payment history
  2. Credit utilization
  3. Length of credit history
  4. New accounts
  5. Credit mix

Of these factors, your payment history carries the most weight in determining your score, followed by credit utilization and then the length of your credit history. New accounts and your credit mix (having a mix of loans, credit cards, mortgages etc.) carry the least weight.

Canceling a credit card, meanwhile, can impact two of the items above: credit utilization and length of credit history.

Your credit utilization is a measure of your debt against your available credit, and ideally, it should be kept at 30% or less. If your utilization exceeds that threshold, your score could take a hit. Therefore, if you have a total line of credit worth $10,000, you should make it a point to never carry more than $3,000 in balances at once.

Here's where canceling a credit card comes in: Let's say you have a $2,500 credit card balance, but you also have a total credit limit of $10,000. That means you're at 25% utilization -- good stuff. But if you cancel a credit card with a $4,000 limit, and you're left with only a $6,000 limit, suddenly, your $2,500 balance is far more problematic, since it puts you at more than 40% utilization. 

Canceling a credit card could also impact your length of credit history. If it's a newer card, it's not as problematic, but if it's an older card that you've had for years, getting rid of it will leave a less long-standing account on your record, which could, in turn, hurt your credit score.

Think before canceling a credit card

If you don’t have a pressing reason to cancel a credit card, then it often pays to hold onto it in order to preserve your credit score. This especially holds true if the card in question doesn’t charge an annual fee

If you’re worried that having that card on hand will tempt you to overspend, lock it away in a home safe, or another secure location, and don’t store its information on any of your favorite retail sites. 

Remember, too, that having a larger line of credit isn’t just good for your credit score; it also buys you more flexibility to charge expenses when they pop up out of the blue. And although tapping into your savings account is a much better way to pay for financial emergencies, retaining a rarely used credit card might give you added protection.

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