Should You Close Your Credit Card? Read This Before Making Your Decision

Wondering if it's better to close a credit card or leave it open with a zero balance? The answer might surprise you. Closing a credit card can increase your credit utilization rate, which accounts for 30% of your FICO® Score—significantly affecting your credit health.

For example, if you have two credit cards with limits of $2,000 and $3,000, closing the $2,000 card would increase your utilization from 20% to approximately 33%. This jump exceeds the recommended 30% threshold that financial professionals suggest maintaining for good credit health.

The impact doesn't stop there. When you close a credit card, you're also potentially shortening your credit history, which makes up 15% of your FICO® Score. This is particularly concerning if you're considering closing your oldest account.

In fact, an unused credit card can remain on your credit report for up to 10 years after closure if it's in good standing—still contributing to your credit history during that time. However, once it drops off, you could see a noticeable decline in your score.

Should you keep that zero-balance card open? Before making your decision, let's examine what really happens when you close a credit card and explore some smarter alternatives that might better serve your financial goals.

Should You Close a Credit Card or Leave It Open?

The decision to close a credit card isn't always straightforward. Many people assume canceling unused cards will simplify their finances or even boost their credit scores, but financial experts often recommend the opposite approach.

Is it bad to close a credit card with zero balance?

Generally speaking, keeping unused credit cards with zero balances open is the standard advice from financial experts. Closing a credit card—especially one with no annual fee—can potentially harm your credit score rather than help it.

The impact varies based on your overall credit profile. If you have a strong credit history and multiple accounts in good standing, closing one card might cause only a minor, temporary dip in your score. Alternatively, if you have a limited credit history or few accounts, closing a card could have a more significant negative effect.

That said, there are legitimate scenarios where closing a card makes sense. If the card carries high annual fees that outweigh its benefits, or if having an open account tempts you to accumulate debt you can't pay off, cancelation might be the right move.

How to evaluate your current financial goals

Before making your decision, consider these key factors:

• Upcoming major purchases: Don't close a credit card if you're planning to buy a house or car within the next year, as even a small credit score drop could affect your loan terms

• Annual fees: If you're paying fees for a card you rarely use, weigh whether the cost is justified

• Spending habits: If having an open card represents an unhealthy temptation to overspend, closing it might better serve your financial health despite potential credit impacts

• Current debt situation: For those struggling to manage existing debt, focusing on reducing balances should take priority over credit score concerns

Furthermore, consider whether alternatives like downgrading to a no-fee version of the card might better serve your needs.

What happens when you close a credit card?

Closing a credit card immediately reduces your total available credit, consequently increasing your credit utilization ratio—the percentage of available revolving credit you're using. Since utilization accounts for approximately 30% of your credit score, this change can have a notable impact.

Additionally, closing a card affects your credit history length. Although closed accounts in good standing remain on your credit report for up to 10 years, eventually this account will drop off, potentially shortening your credit history.

Your credit mix may also be affected, especially if the card represents your only revolving credit account. While this factor has less impact on your score than utilization, it's still worth considering.

Remember that even after closing an account with a balance, you remain responsible for paying off that debt plus any accruing interest.

How Closing a Card Can Affect Your Credit

Understanding the mechanics behind credit scoring reveals why closing a card often hurts more than it helps. The impact varies depending on your specific credit profile, yet most cardholders experience at least some negative effects.

Reduction in total available credit

When you close a credit card, you immediately reduce your overall available credit, which directly impacts your credit utilization ratio—the percentage of available credit you're using. This ratio accounts for approximately 30% of your FICO score.

Consider this scenario with two credit cards:

• Card 1: $2,000 limit with $1,500 balance

• Card 2: $1,500 limit with $0 balance

With both cards open, your utilization is 43% ($1,500 ÷ $3,500). After closing Card 2, this jumps dramatically to 75% ($1,500 ÷ $2,000). Financial experts typically recommend maintaining utilization below 30%, so this increase could significantly impact your credit score.

Shortening of credit history

Initially, closing a card won't affect your credit history length. Contrary to popular belief, accounts closed in good standing remain on your credit report for up to 10 years. Nevertheless, once that period passes, losing your oldest account from your credit history could cause your score to drop.

The length of your credit history makes up 15% of your FICO score. Accordingly, preserving older accounts—even unused ones—often benefits your long-term credit health.

Potential score drop for thin credit files

People with limited credit history face greater risks when closing accounts. If your credit card is one of only a few sources of credit, closing it could leave you with a "thin file," meaning you might not have enough credit history to generate a robust score.

Similarly, your credit mix (the variety of credit accounts you maintain) influences your score. Closing your only credit card eliminates the revolving credit component from your profile. This could further compromise your score, primarily if you rely heavily on that particular card for establishing creditworthiness.

First-time borrowers or those rebuilding credit should be especially cautious about closing accounts, as the resulting score impact could be considerably more severe than for someone with extensive, established credit.

Smart Alternatives to Canceling a Card

Before rushing to close an unwanted credit card, consider these smarter alternatives that preserve your credit health yet reduce hassles or costs.

Downgrade to a no-fee version

Instead of canceling a card with an annual fee, ask your issuer about a "product change" to a no-fee version in the same card family. This approach preserves your account history and credit line while eliminating yearly costs. Many major banks offer downgrade paths—Chase Sapphire cards can convert to Freedom cards, and premium American Express cards often have lower-fee options. Importantly, downgrading typically doesn't trigger a hard credit inquiry since you're not opening a new account.

Freeze the card instead of canceling

Many issuers now offer temporary "freezing" features that block new purchases and cash advances without closing the account. During a freeze, your card still processes recurring payments you've already set up, refunds, credits, interest charges, and rewards redemptions. This option works well if you've misplaced your card, want to control spending, or simply need a temporary pause. You can easily unfreeze the card whenever needed through your issuer's mobile app.

Use it for small recurring charges

Keep rarely-used cards active by assigning them a single small monthly subscription:

• Streaming services

• Monthly memberships

• Utility bills

This strategy prevents account closure due to inactivity while creating a dedicated card for tracking recurring expenses. Just set up automatic payments to ensure you never miss a due date. As a bonus, this approach makes unusual charges easier to spot, enhancing fraud protection.

Transfer credit limit to another card

If you have multiple cards with the same issuer, you can typically transfer available credit between them before closing one. Simply call customer service or send a secure message requesting credit reallocation. This method maintains your total available credit, preventing utilization ratio increases that would otherwise hurt your score. Moreover, this option works particularly well when closing cards with high credit limits or combining credit lines onto cards with better rewards programs.

How to Cancel a Credit Card the Right Way

Once you've decided that closing your credit card is the right move for your situation, following the proper cancelation procedure becomes crucial to minimize negative impacts. Taking these methodical steps ensures you avoid common pitfalls that could complicate your financial life later.

Check for outstanding balance

Prior to closing your card, pay off your entire balance. If you cancel with outstanding debt, you'll still be responsible for payments plus continued interest charges. Importantly, some issuers allow you to close the account to new charges while you continue paying off the balance. Be cautious with this approach—forgetting about the account could lead to missed payments and credit damage.

Redeem or transfer rewards

Don't forfeit hard-earned rewards! What happens to your points varies by card type:

• Bank-specific rewards: With Chase, you have 30 days to use points after closure. American Express points disappear immediately if you close your last Membership Rewards card. Capital One rewards are forfeited upon closure, whereas Citi gives you 90 days to use ThankYou points.

• Co-branded cards (airline/hotel): These rewards typically remain in your loyalty account even after closing the card.

Certainly check whether transferring points to travel partners or redeeming for statement credits makes sense before calling to cancel.

Notify the issuer and get confirmation

Call the customer service number on your card and clearly state your intention to close the account. Be prepared for retention offers—representatives often propose annual fee waivers or bonus points to keep you. If determined to close, request that they note it as "closed at consumer's request" in your credit file.

Following the call, send a written cancelation notice for your records. This creates a paper trail should any disputes arise later.

Monitor your credit report after closure

Approximately 30-45 days after cancelation, check your credit reports to verify the account shows as "closed by consumer" rather than "closed by issuer." Closed accounts in good standing remain on your report for up to 10 years, continuing to contribute positively to your credit history during that time.

Conclusion

Deciding whether to close a credit card requires careful consideration of your unique financial situation. Throughout this article, we've examined how closing a card affects your credit utilization ratio and potentially shortens your credit history—two factors that significantly impact your overall credit score.

Most importantly, keeping unused cards open typically benefits your credit health, especially cards with no annual fees. Nevertheless, certain circumstances like high fees or unhealthy spending temptations might justify closure despite potential score impacts.

Before making your final decision, evaluate alternatives such as downgrading to no-fee versions, freezing the card temporarily, or assigning small recurring charges to keep the account active. These options allow you to maintain your credit history while addressing concerns about fees or complexity.

Should you ultimately decide to close your card, remember to pay off balances, redeem rewards, and request written confirmation of the closure. Afterward, monitor your credit report to ensure accurate reporting of the account status.

Your credit cards represent tools for building financial health—not obstacles. The right choice depends on balancing immediate financial needs against long-term credit goals. While conventional wisdom suggests keeping cards open, your personal financial journey might dictate a different path. Financial decisions rarely follow a one-size-fits-all approach, hence weighing all factors discussed will help you make the choice that best serves your unique situation.

FAQs

Q1. Is it better to keep unused credit cards open or close them? Generally, it's better to keep unused credit cards open, especially if they have no annual fee. Keeping cards open maintains your available credit and credit history length, which can positively impact your credit score.

Q2. How does closing a credit card affect your credit score? Closing a credit card can potentially lower your credit score by reducing your total available credit and increasing your credit utilization ratio. It may also shorten your credit history length if it's one of your older accounts.

Q3. When might it be appropriate to close a credit card? It may be appropriate to close a credit card if it has high annual fees that outweigh its benefits, or if having the open account tempts you to accumulate debt you can't pay off. However, consider alternatives before closing.

Q4. What are some alternatives to canceling a credit card? Alternatives to canceling include downgrading to a no-fee version of the card, freezing the card temporarily, using it for small recurring charges to keep it active, or transferring the credit limit to another card with the same issuer.

Q5. How should you properly close a credit card account? To properly close a credit card, first pay off any outstanding balance, redeem or transfer any rewards, then contact the issuer to request closure. Ask for written confirmation of the closure and monitor your credit report afterward to ensure accurate reporting.