Does closing a credit card improve your credit health? It depends on your situation. Closing a credit card can save you money if the card has an annual fee. And having fewer cards in rotation can mean fewer payments for you to keep track of. However, maintaining revolving debt can be good for your credit health if you manage it responsibly. And closing a line of credit could affect your credit scores in some surprising ways.
Here are some important factors to consider before closing a credit card so any impact to your credit health doesn’t come as a surprise.
Your credit utilization rate may increase
- Your credit card utilization rate is the ratio of your credit card debt to your total credit card limits.
- When you close a card, you reduce your overall available credit. Unless you also cut back on your spending, this can increase your credit utilization rate.
- Many scoring models take your utilization rate into account, as it’s a quick and easy way to gauge how you’re managing your credit and whether you’ll be able to pay off your debts in the future.
- If you keep your overall credit utilization below 30 percent, it typically shows lenders that you’re using credit, but not dependent on it.
Closing an account could lower your average age of credit history
- Age of credit history refers to the length of time you’ve been using credit. In general, credit scoring models look at the age of your oldest and newest accounts and the average age of all your accounts to determine the impact that age of credit history will have on your credit scores.
- Closing older credit accounts could cause your credit history to appear shorter.
- A longer history shows you have more experience using credit so if you close a card that is significantly older than your other cards, it could lower your average age of accounts.
- While your average age of accounts isn’t typically the most important factor used to calculate your scores, it does matter. If it falls, it can negatively impact your credit health.
There’s a lot more to consider before closing a credit account and plenty you can do to get any credit card debt you may have under control. Make sure to check out our in-depth guide about the do’s and don’ts of closing a credit card.