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I just opened a new credit card and I'm trying to learn more about how credit cards affect my credit score. I believe I have four credit cards but currently only use two. I have one that I've had since 2001 that I keep as an emergency card that I do not use.
I called to cancel the third, and they were, of course, trying to get me to keep it. Should I keep and reduce the limit? Should I cancel any I do not use? Does it matter how long you've had a card? I do not want all these cards open, but I do want an emergency card. I also do not want to negatively affect my credit.
— MNI
Dear MNI,
Canceling a credit card account can affect your credit scores, even if you are no longer using it. The main reason is that closing the credit card increases your overall utilization rate. Also, closing a credit card with a long and positive history may have a negative effect.
How canceling a credit card affects your credit
Your utilization rate, or balance-to-limit ratio, is the total of all your balances divided by the total of all your credit limits. When you close an account, you lose the credit limit for that card, which may cause that ratio to increase. That increase can negatively affect your credit scores.
Reducing the credit limit could also cause that ratio to increase, resulting in a similar effect on your scores.
How long a credit card account has been open impacts credit scores
Another thing to consider is how long you have had the account.
Accounts that have been open longer tend to have a more positive effect on credit scores than accounts that haven't been open as long. If the account you are considering closing is one of the accounts you have had the longest, you may want to reconsider.
Deciding whether to cancel a credit card
On the other hand, there are things other than your credit score to consider when deciding whether or not to close a credit card.
If the card has an annual fee, it may not make sense to continue paying that fee to keep an account open that you don't use.
For some people, an open credit card represents a temptation to spend more than they can comfortably repay. It may be better for them to close the account so they don't take on debt they can't repay, even though their credit scores may dip.
Before making a decision that could affect your credit rating, order your credit score and report. Your score will come with a list of the items from your credit report most affecting the score. Those risk factors describe what is currently affecting your score the most.
Use these factors to help you make the best decision for your situation.
Closing Your Credit Card
If you decide that closing your account is the best course of action, the following are some steps to take:
- Pay off any existing balance, including any outstanding charges that may not have posted to your account yet.
- If you've accumulated any rewards points, you may have to redeem those points before closing the account or risk losing them.
- Notify the lender that you wish to close the account.
- Monitor your credit report to ensure that changes to your account are reflected accurately. Allow 1-2 billing cycles for your creditor to update your account to show that it has been closed and paid and paid in full.
Thank you for asking,
The "Ask Experian" Team