Close a Credit Card Account Without Hurting Your Credit
Last Updated: March 23, 2017
Contrary to popular belief, it is possible to close a credit card without it having a negative impact on your credit score. This is especially good news if you are determined to clean up your credit but have a tendency to max out your credit cards. When you eliminate lines of credit altogether, then racking up new debt is no longer an option. This gives you a fool-proof safety net if and when temptation strikes to spend beyond your means.
Can Closing a Credit Card Hurt My Credit?
One of the most important contributors to your credit score is your credit utilization ratio, or debt-to-credit ratio. The lower your ratio the better, with most experts agreeing it should not exceed 30 percent. So if you are considering closing a paid-off credit card, calculate how your ratio may be affected.
How to Calculate Your Credit Utilization Ratio
We recently added a great article on how to calculate your credit utilization ratio. But here it is in a nutshell - add up how much you have in available credit then add up how much of that credit you are carrying a balance on. Divide your total balance by your total available credit to determine your percentage. For instance, if you have $5,000 in available credit, and are carrying a balance of $1,000, then your debt-to-credit ratio is 20 percent. So, if you were to cancel a credit card with an available balance of $2,500, that leaves you just $2,500 in available credit - your credit utilization ratio increases to 40 percent.
Should You Zero Out the Account Before Closing?
If you have the means to pay off all of your credit card balances, you will certainly be better-served, in more ways than one. Not only does it prevent you from racking up interest on unpaid balances, but it ensures that you have the ideal debt-to-credit ratio of zero percent. This is the best way of ensuring that your credit utilization ratio will not go up after closing a credit card. If paying off all your balances is not an option, but you are determined to close a credit card anyway, calculate what your debt-to-credit ratio will be after the fact. If the increase is significant, reconsider. If the increase puts you over 30 percent, don't do it.
Steps to Closing a Credit Card Account
- Note your credit score so as to have a point of comparison once the account has been closed.
- Pay off the credit card debt.
- If possible, bring all other available lines of credit to zero (so as to ensure your credit utilization rate does not go up, which negatively affects your score).
- Call the credit card company to confirm that they show a zero balance on the account you want to close. Once confirmed, request via this phone call that the account be closed. Ask that you be mailed written confirmation of the account's closing.
- In addition to your verbal request over the phone for confirmation of the account's closing, follow up with a letter requesting the same.
- Once you have received written confirmation that the account has been closed, file it away in a safe place for future reference, if necessary.
- Wait a few weeks then check your credit report and credit score. Make sure your credit report reflects a zero balance on the account, paid-in-full, and that it has, in fact, been closed. Also note how your credit score differs now (hopefully not at all) from how it stood before you closed the account.
Closing a Credit Card May Shorten Credit History
According to FICO, your credit score should not suffer from a shortened credit history simply because you close one of your cards.