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Q&A: How Can I Close Credit Card Accounts Without Hurting My Credit Score?

Mary writes: Since turning 18 (I’m now 26), I have already amassed nine different credit cards with a combined credit limit of around $30,000. I’m paying down a combined credit card debt on four of these cards of about $20,000. I’d like to close out accounts I’m not using and as I pay them off, but I heard it will affect my credit report and score. What do I do?

Congrats on making progress towards your credit card debt. What you have read is correct: Closing credit card accounts may not look great on your credit report, and lower your credit scores. This happens for two reasons.

First, the longer you have had credit accounts open, the higher your credit score will go. If you close an account you got when you turned 18, it will take a chunk out of your score.

Second, part of your credit score is based upon what bankers call your utilization ratio. That’s the ratio of your current balance to your total combined credit limits. Right now, yours is a fairly high 66%, so it’s likely lowering your credit score. Close credit card accounts before paying down your balance, however, your utilization ratio will go up, and your credit score will drop.

Knowing this, there are ways to go about closing accounts that will minimize any negative impact on your credit report. And this isn’t necessarily a bad thing to do. After all, these dips in your credit score will be temporary, and whenever a real person reads your credit report, having five or fewer credit cards looks better than having nine.

Look for accounts that have been open the shortest amount of time and close those first. Avoid closing your first one or two credit cards, even if you don’t use them. Next, close credit card accounts with the smallest credit limits. (Store charge cards and credit accounts are good candidates for this).

Finally, don’t close accounts on which you still carry a balance if you can help it. You’ll always have more leverage with your credit card (to negotiate lower interest rates, for example), if they think you will continue to make charges on the account.

A final note about closing credit card accounts: About one or two months after you close an account, check your credit report to ensure the card company reported the account as “closed at account holder’s request”. If your report reflects that the account was closed by your bank, it won’t look great to future prospective lenders on your report.

Get a (really) free copy of your credit report. Learn how here.

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. I have another question…why?

    Closing credit cards can’t help your credit score, but it can hurt it. So why would you close it? Just don’t use it.

    • May not want to pay $30 annual fee for something you don’t use. Especially if your have 3-4 cards you don’t need.

  2. In a few months I’ll be receiving a settlement for a car accident. From what I was told I will be receiving any where from $15k to $20k for it (After all lawyer and medical fees). My question is, will it increase my FICO score more if I pay down my credit card debt first and put whatever is left towards my car loan or should I do the opposite? I was wondering since when my car loan is paid off the account will automatically close and take some of my score with it…

  3. @ Walt: I need to research this more, but I believe that above a certain number of revolving accounts (credit cards), your score can start to go back down. While it’s best to have higher limits, it’s better to have big limits on a few cards than a lot of cards totaling a bit limit.

    @Lara: Great question: I would definitely recommend paying down the credit cards BEFORE the car loan. Your credit score will improve faster from paying off the cards. Also, I would guess you’re paying higher interest on the credit cards than the auto loan.

    The exception might be if you can transfer your credit card debt to a card with a 0% intro rate. If your goal is to get out of debt quickest and with paying the least interest, it may make sense to transfer balances to a 0% card, pay off the car, and then pay off the credit card within the 0% period (if it works for you).

  4. My question is…when I graduated from college, I didn’t get a job like I thought I should have. I had to wait for 3 months before getting a job. Within that time I went back to my high school job and I used that money to pay for my car so they won’t inpound it. Basically I didn’t have enough money to pay my monthly credit card bills. I called the credit card companies and told them about my situation but they didn’t care. I signed up for the credit card protection and that didn’t help me when I needed it. Anyways, I joined a credit counseling program and paid off all my credit cards in a year that had fallen into delinquencies. My stepmom told me to close all my credit card accounts after I paid them. I did just that and later realized that was a very bad decision. I did however open new credit cards and I haven’t missed a payment yet, my credit is not where I would like it to be. I don’t owe much, less than $300 total on all my cards, but to get a loan for a car the interest they quote me are very high therefore making my monthly payment very high as well. What do I need to do to get my score higher and to get rid of the delinquencies on my credit report.

    I’ve done all I know to do, your help will be greatly appreciated.

  5. One reason I am wanting to close old accounts is they have annual or monthly fees even if I do not use them.

  6. @steve
    call you credit card company and tell them to eliminate your annual fee. if you have somewhat good credit they will do that, and even lower your interest if you request. tell them you are getting better offers on the other cards..
    it worked for me.

  7. My husband closed all (approximately 6 cards and left about 4 credit accounts open…By doing so did he ruin his chance to negotiate interest percentages on the closed accounts?

  8. My credit cards want to increase the interest rate from 8% to 30%. I decided to opt out so I can keep my debt at a lower percent, but since the account will be closed with a balance, how will that affect my credit score? is it bad to have a close credit card with a balance?
    thank you so much for your help

  9. My husband had a credit card through First National Bank Omaha. He purchase a program in which the credit card company would pay his payments if he was laid off of work or lost his job. Last year he was laid off for several months and applied for this program. They approved him and made 1 payment in the 5 months he was out of work. The following month he noticed his statement showed he was late on a payment (which was their fault) and his interest rate was increased from 13.99% to 27.99%. He contacted the Attorney Generals Office and they had First Bank Omaha credit the account and reduce the interest rate back to the original 13.99%. At that point, my husband closed the account and has made his monthly payments. Today, we received a statement showing they increased his account to 27.99% even though the account was closed and we have never been late on a payment. We did not receive notification of the interest rate increase. This seems so unfair. Any suggestions on how to handle this?