Will Closing Old Credit Cards Hurt Credit Score 2024

Will Closing Old Credit Cards Hurt Credit Score?

Credit cards play an integral role in building and maintaining good credit. Many people have doubts if closing old unused credit cards can negatively impact your credit score. This comprehensive guide provides insight into how closing old credit cards affect your credit score and steps you can take to minimize damage.

Do Inactive Credit Cards Impact Credit Score?

Having open but inactive credit cards indeed influences your credit score calculation. Credit agencies take into account factors like:

Credit Mix

Lenders want to see you can handle different types of credit responsibly. This includes installment loans like mortgages, student loans as well as revolving credit like credit cards. Closing old credit cards negatively impacts credit mix.

Credit History

This refers to the length of your credit history. The longer your credit history based on the oldest credit card account, the better. Closing your old unused credit card can shorten the length of credit history.

Credit Utilization Ratio

This refers to the ratio between total credit card balances versus total available credit limit. Experts recommend maintaining credit utilization below 30%. Closing old cards lower available credit limit, increasing credit utilization ratio.

Based on above factors, having open but inactive credit cards helps strengthen your credit score. Closing them may negatively impact your score.

When Can Closing Credit Cards Hurt Your Credit Score?

Closing old credit cards can damage your credit score if:

Card has Long Credit History

Closing your oldest credit card shortens the length of your credit history – an important factor in credit score calculation.

For example, Sam has 5 credit cards. His oldest card opened 15 years back. Last year he closed this unused old card. Even though inactive, closing this card reduced the length of his credit history.

Card has High Credit Limit

Let’s continue with Sam’s example. His old unused credit card had a $20,000 limit. By closing it, his total available revolving credit limit reduced by $20,000. As a result his credit utilization ratio increased despite no change in spending habits.

Based on above examples, closing old established card with high credit limit lowers total available credit. This increases utilization ratio hurting credit score.

When Does Closing Credit Card Not Impact Credit Score?

However, closing old credit cards may not damage your credit score if:

Card Opened Recently

Say Sam opens a new retail credit card to avail store discounts. He uses the card for a few months but soon stops. Within 6 months of getting the card, he closes it. In this case, short card history means closing this card does not impact his credit score.

You Have Multiple Old Cards

Assume Jane has 4 credit cards – 2 old cards opened over 10 years back + 2 new cards opened recently. She closes one old unused card. Though her total credit limit decreases, closing this one old card does not shorten her past credit history length significantly as she still has another old card.

Based on this, if you have multiple old cards established for long time, closing one old inactive card does not really impact credit score.

How to Minimize Credit Score Damage When Closing Old Cards?

If you have decided to close old credit card accounts, some smart moves can help minimize score damage.

Pay Off All Balances First

Ideally avoid closing card with unpaid balance. If you cannot pay off, try transferring the balance to another card with lower interest rate. Never max out cards before closing – pay off all balances first.

Use Cards sparingly Before Closing

Before closing a card, use it sparingly for 6 months. Reduce utilization well below 30%. This gradually minimizes impact on credit score over time.

Open New Card First

Open a new credit card account before closing old unused card. This maintains total available credit and length of credit history helping minimize score damage.

Careful planning and monitoring credit reports from agencies can help make informed decisions regarding closing old cards without hurting your score.

Managing Credit Cards to Build Credit Score

Maintaining good credit score requires responsible management of credit cards. Here are some tips:

Use Credit Cards Sparingly

Keep credit utilization ratio below 30% by using credit cards sparingly. Using more than 30% of available credit limit signals overdependence on credit cards.

Pay Balances Promptly

Set payment reminders to pay credit card bills on time each month. Late payments lead to additional fees plus negative impact on credit score.

Limit Total Cards

Apply for new credit cards only when essential. Having too many cards with high unused credit limits signals credit risk. Apply only if you plan to use the cards responsibly.

Monitor Credit Reports

Check credit reports from Equifax, TransUnion and Experian. Review the reports to check for any errors and gain insight into factors impacting your score.

Responsible credit card habits lead to good credit score over time. Avoid closing old unused cards abruptly. Use planned strategies to minimize score damage.

Conclusion

In most cases, closing old unused credit cards can negatively impact your credit score due to reduced length of credit history, lowered total available credit and increased utilization ratio. However, if you have multiple old cards or recently opened card, closing one may not impact your score significantly. Use smart strategies like opening new card first or reducing utilization before closing old card to minimize damage. Most importantly, make informed data driven decisions based on monitoring your credit profile rather than abruptly closing old cards.

FAQs

Q1: How long does closing a credit card affect your credit score?

Closing an old unused credit card can negatively impact your credit score for upto 10 years due to reduced length of credit history. However, the maximum damage happens within first year of closure.

Q2: Will my credit score go up if I close a credit card?

Closing a credit card typically causes credit score to go down instead of up because it reduces your total available credit and credit mix. It can also shorten your length of credit history if you close one of your oldest cards.

Q3: Does closing a credit card hurt your credit utilization?

Yes, closing any credit card lowers your total credit limit across all cards. With lower overall limit but same spending amounts, your credit utilization ratio increases leading to credit score drop.

Q4: Should I close my oldest credit card?

Avoid closing your oldest credit card because it has longest history and closing it can shorten your overall credit history length significantly leading to larger score drop.

Q5: If I pay off a credit card before closing it, will my score go down?

Even if you pay off credit card balance to zero before closing the account, it can still hurt your credit score. Factors like lowered total limits, credit mix impact etc remain in play though you erase the balance, so score can still drop.