Closing a Credit Card Impacts Your Credit Score | CCCS of Iowa
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Closing a Credit Card Impacts Your Credit Score

You might not know this, but closing your credit card isn’t always a good thing—in fact, it can actually hurt your overall score. Many people open cards when they start building credit and later decide to no longer use them, so ditching the card can seem like the right thing to do. That's not always the case. 

While there are good reasons to close a card, simply not using it anymore isn’t necessarily one, especially when you factor in the different components that make up your overall credit health.

Here are three reasons why you shouldn’t close your credit card:

1. Your credit utilization is going to go up

When you have credit cards, the amount you owe versus the available credit you have weighs in at a hefty 30% of your overall credit score. Before closing a credit card, make sure that by doing so, you’re not going to end up owing lenders more than 30% of your available credit. If you do, your credit could take a serious hit.

2. You have a card with a long history

Your credit cards are tied to your credit history, so if you decide to close one you’ve had for a while you'll be shortening your credit history and ultimately taking a ding to your credit score.

3. You will no longer have a good credit mix

Having a good credit mix means you have different types of credit open. If you only have one or two credit cards, it might be a good idea to keep them open so you can maintain a healthy credit mix. This doesn’t weigh as heavily on your score, only 10%, but it’s still important to keep in mind.

Conversely, here are three reasons why you should close a credit card:

1. You are spending irresponsibly. 

If you're overspending and unable to make regular payments, your credit score will rapidly decrease. If you can't make your payments, stop using your card and make an appointment with a credit counselor. These professional counselors can help you create a budget and set you on the right path toward healthier financial habits. They can also provide financial literacy workshops and information for you to utilize on your path to paying off debt and reducing your credit cards.

2. You’re getting divorced.

If you and your partner are separating and share a joint account, closing that credit card is a must. You don’t want your ex to run up any credit card bills that you’ll wind up responsible for, potentially putting you in debt and tanking your credit score in the process.

3. Your interest rate is too high.

No one likes paying more than you owe, but that’s what happens when you have a card with a high interest rate. However, if you run the risk of hurting your credit by closing your card, one solution is to open another before closing the high-interest one. If you have a balance, it’s also a good time to transfer it to a lower-interest rate card.

Bottom Line

While closing your credit cards may be more complex than you anticipated, if you consider your options and personal situation, you can make an informed decision that’s right for you.

Looking for more advice on how to handle your credit card and overall financial management? We offer credit counseling to equip you with the skills you need to restore your finances.