Will removing a credit card hurt my credit score?

Can Closing a Credit Card Damage Your Credit Score?

Closing a credit card can have a detrimental impact on your credit score, especially if you fail to pay off any outstanding balance. Here’s why:

Reduced Available Credit:

When you close a credit card, you reduce your total available credit limit. This increases your credit utilization ratio, which is the percentage of your total available credit that you’re currently using. A high credit utilization ratio can lower your credit score.

Length of Credit History:

The length of your credit history is a significant factor in determining your credit score. Closing a credit card, especially one with a long history, can shorten your average credit age and negatively affect your score.

Payment History:

If you have any outstanding balances on the credit card you’re planning to close, these will become past due as soon as you close the account. This can damage your payment history, which is another key component of your credit score.

Exceptions:

In some cases, closing a credit card may not have a significant impact on your credit score. For example:

• If you have multiple credit cards with high balances and low credit limits, closing one or two cards can actually improve your credit utilization ratio.
• If the credit card you’re closing has an annual fee or other negative features, it may be beneficial to remove it from your financial portfolio.

Strategic Considerations:

Before closing any credit cards, carefully consider the following factors:

• Pay off any outstanding balances.
• Ensure you have alternative sources of credit to avoid exceeding your credit utilization ratio.
• Close cards with shorter histories and low balances first.
• Keep cards with long histories and high credit limits open.

In conclusion, closing a credit card can negatively affect your credit score, especially if you have an outstanding balance or a limited credit history. Strategically consider your credit card usage before making any decisions to close accounts. If you have any concerns, consult with a credit counselor or financial advisor for personalized guidance.