Does cancelling a credit card affect credit score?

Does Canceling a Credit Card Impact Your Credit Score?

Closing a credit card can potentially have a detrimental effect on your credit score. Here’s why:

Available Credit

When you cancel a credit card, you reduce the total amount of available credit you have. This, in turn, can increase your credit utilization ratio, which is the percentage of available credit that you’re using. A high credit utilization ratio can negatively impact your credit score.

Credit Age

The length of time you’ve had credit accounts in good standing factors into your credit score. Closing a credit card, especially an older one, can shorten your average credit age, which can also lower your score.

Payment History

If you haven’t paid off the balance on the credit card before closing it, this can be reported as a negative item on your credit report. Late or missed payments can significantly damage your credit score.

Minimizing the Negative Impact

To minimize the negative effect of canceling a credit card on your credit score, consider the following:

• Pay Down Balances: Make sure to pay off any outstanding balances on the card before closing it. This will prevent your credit utilization ratio from increasing.
• Keep Older Cards Open: If you have multiple credit cards, consider keeping the older ones open, even if you don’t use them frequently. This will help maintain your average credit age.
• Avoid Closing Multiple Cards: Closing multiple credit cards in a short period of time can have a more significant negative impact on your credit score. Try to space out closures if possible.
• Consider Credit Building Options: If you’re concerned about the impact on your credit score, consider alternative credit-building options, such as secured credit cards or credit-builder loans.

When to Consider Closing a Credit Card

In certain situations, closing a credit card may make sense:

• Annual Fee: If the card has a high annual fee that you’re no longer willing to pay.
• High Interest Rates: If you have high-interest debt on the card and can’t afford the payments.
• Fraud or Security Breach: If the card has been compromised or subject to fraudulent activity.

However, if you’re considering closing a credit card, it’s always a good idea to carefully evaluate the potential impact on your credit score before making a decision.