Posted on: Jul. 16, 2017 in Credit, Credit Score

Credit can seem like a difficult concept to really understand. The basics are easy – you borrow; you pay interest; you pay it off. But the devil is in the details and that’s where many people seem to get tripped up. The internet, friends and family, and various financial institutions will provide you with a seemingly endless stream of financial advice. Knowing what’s true and what’s right for your situation can get a little tricky.


One popular question that seems to have multiple answers is whether or not you should close old credit cards that are not in use. The answer: Maybe.

If you ask around, many will tell you that closing a card will definitely lower your credit score. That is a true statement, however, it’s not as big a deal as many make it out to be. First, the impact is usually only a couple of points. If your score is otherwise good, these few points probably won’t make a difference. Second, the impact is often temporary. Finally, if you have other cards on your history, you’re likely not creating a void.

There are times, however, when closing that card will have a much bigger impact:

  • If your credit score is low, those few points might really matter.
  • Credit scores are partially based on how much debt you have compared to how much available credit you have. This is called your utilization ratio. If you lower your available credit by closing a card, your debt looks worse by comparison.
  • If you close the card at the wrong time, say in the middle of applying for a major loan like a mortgage, the impact can be more significant.
  • If you don’t have other credit, if this was your oldest card, or you don’t have a long enough credit history, the closing will matter more. Keep in mind that even a closed card will still show in your history for a period of time and, hopefully, you’ll have replaced it with something else in that time.

Another thing to keep in mind is that closing a card you still owe money on will not make that debt go away or remove the history from your report. This means that your utilization ratio (that thing we mentioned above) will be negatively impacted.  

If you have a card that’s paid off and you’re no longer using, you may be tempted to ditch it thinking it will make your credit score look better. Since closing it won’t raise your score, you may as well keep it open unless you have to pay an annual fee to do so. Also, remember that a card you do not use can eventually be deemed inactive, so it makes sense to periodically put something on it and pay it off in full just to keep it as an active part of your credit score calculations.

But if keeping the card just leads you to running up debt you don’t need to have, you may be better off closing it. Be honest with yourself and weigh your choices carefully!

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