Should You Close a Credit Card?

What to Consider Before Making the Move

Have you ever wondered if you should close a credit card you never use? The answer isn’t always straightforward. While closing a card may seem like the right move, especially if you’re trying to simplify your finances, it can also impact your credit score in ways you may not expect. Before you cut up that piece of plastic, here’s what you should know.

Closing a Credit Card Can Affect Your Credit Score

One of the biggest factors in your credit score is credit utilization—the percentage of your available credit you are currently using. For example, if you have $10,000 in total available credit across all cards and carry a $2,000 balance, your utilization rate is 20%.

When you close a credit card, you shrink your total available credit. This means your utilization rate could jump higher even if your balances don’t change. A higher utilization rate signals to lenders you may be more of a risk, which can lower your credit score.

Another factor to consider is credit history length. If the card you’re thinking about closing is one you’ve had for many years, shutting it down could shorten your average account age. This can also ding your score.

So if you’re planning a major purchase in the next six to twelve months—such as buying a home or applying for an auto loan—it’s usually best to avoid closing any accounts. Even a small dip in your credit score could cost you thousands in interest over the life of a loan. And keeping an old card open, even if you don’t use it often, helps maintain both your available credit and your credit history.

When Closing a Card May Be the Right Move

There are situations where closing a credit card makes sense:

• High annual fees: If you pay $100 or more each year for a card you don’t use, it might not be worth keeping. Unless the card offers significant perks or rewards that outweigh the fee, canceling can save you money.
• Overspending temptation: If having multiple credit cards makes it harder to control your spending, eliminating a card or two can help you stick to your budget. Sometimes financial peace of mind is worth more than the few points you might lose on your credit score.
• Fraud risk: Dormant cards can still be hacked or misused. If you’re not monitoring them closely, canceling reduces the risk of fraudulent charges slipping by unnoticed.

How to Close a Credit Card the Right Way

If you decide that closing a card is the best move for you, follow these steps:

1. Pay off the balance first. Make sure the card is fully paid down before you cancel it. Closing an account with a balance can cause issues with reporting and may hurt your score even more.
2. Redeem rewards. If your card has cash-back, points, or airline miles, use or transfer them before closing. Once the account is shut down, those rewards typically disappear.
3. Close gradually. Don’t cancel multiple cards at once. Spread out closures over several months to lessen the impact on your score.
4. Get confirmation in writing. Call your issuer, request account closure, and ask for written confirmation that your balance is $0 and the account is closed. Keep this for your records.
5. Monitor your credit report. After a few months, check your credit reports to ensure the account is marked as “closed by consumer.” This designation is better than “closed by creditor” when future lenders review your history.

Finding Balance

The decision to close a credit card isn’t one-size-fits-all. The key is to evaluate your personal situation and long-term financial goals. By understanding how credit utilization, account history, and timing all play into the equation, you can make the decision that works best for you—and your wallet.

If you have questions about managing your credit or any other financial concerns, please reach out to a Town & Country Member Services Representative at info@tcfcu.com, by calling 1-800-649-3495, or scheduling an appointment here.