Closing Credit Cards Without Credit Score Impact

Tuesday, June 11th, 2013

People always advised not to close old credit cards because credit score may go down. But is it always true?

Yes and No. Sometimes you can safely close your credit cards without any negative impact to your credit scores. But sometimes it may indeed hurt your credit scores.

So, what’s the reason? The reason is called “debt to limit” percentage, which infamous, but not less important to your FICO score.

The debt to limit percentage is determined by summarizing all your credit card balances and all credit limits of all your credit cards and then dividing the total balances by the total credit limits. Unused credit cards with decent size credit limits may help you to keep that percentage lower.

If you close a credit card (or credit cards), you will lose the value of unused credit limit and that may cause your debt to limit percentage to go up. The high percentage will almost certainly cause your credit scores to go down. The negative impact may be significant, that is why the percentage is so important.

Now when we understand why the credit scores may go down after you close credit cards, let’s describe some situations where it is safe to do so.

Closing a credit card with very low credit limit. In this case the impact to your debt to limit percentage is likely going to be minimal or even insignificant. Such cards like secured credit cards, shopping credit cards and gasoline credit cards almost always have low credit limits and can be closed without any score impact.

Closing a credit card with high credit limit. That may lower your credit scores. But if you have several credit cards with high limits and you close one of them, your debt to limit percentage may still be acceptable and the closure appear to be immaterial or cause minimum impact.

Closing a credit card after opening a new one.  Consider it as a cleanup, but only if you replace a credit card with one that has a higher credit limit. If the closed card had a higher credit limit than the opened one, then your debt to limit percentage will go up lowering your credit scores.

You have probably heard that closing your old credit card will hurt your credit score because that shortens your credit history. That’s not true. As long as the account is reflected on your credit reports you will always get the value of the age of the card. So, don’t worry about how old the credit card which you are going to close.

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