Closing a credit card: what to think about

Resources · Cards, loans and credit · 5 min read Building

Key points

• Closing a credit card doesn’t clear any balance on it. You still owe what’s left.
• It can raise your credit utilisation, because you lose that card’s limit.
• It can save fees and remove temptation, which matters too.
• There’s no single answer. It depends on the card, your other credit and your plans.

Closing a credit card can save you an annual fee and take away the temptation to spend. But it can also nudge your credit score down, because your total available credit shrinks. Whether it makes sense for you comes down to what the card costs, what you owe elsewhere, and whether you’re planning to apply for credit soon.

Here’s what to weigh up.

What closing a credit card does and doesn’t do

Once it’s closed, you can’t make new purchases on it. Annual or monthly account fees usually stop from that point. And the card’s limit drops out of your available credit.

What it won’t do is clear the balance. Anything you owe still has to be repaid, and interest usually keeps being charged on it under the card’s terms. It also won’t wipe the card’s history off your credit report straight away. Closed accounts often stay on a report for a while, and how long varies by country.

The case for closing

Fees are the obvious reason. A $120 annual fee is $600 over five years, for a card that might just sit in a drawer.

Temptation is another. If having the card there makes it harder to stick to your plan, getting rid of it makes the plan easier. Simple. Some people also just have more cards than they can keep track of, and fewer accounts means fewer due dates and statements to watch. Others want a lower total limit as a safeguard against themselves.

Then there’s security. An unused card can still be a target for fraud, and an account nobody’s watching may not get noticed until it’s too late.

These are real benefits. Your score is one thing to think about. It isn’t the only thing.

The case for keeping it open

Credit utilisation

Utilisation is your card balances as a share of your total limits. Close a card and its limit disappears, so the same balances now make up a bigger share.

Here’s an example. You’ve got two cards with limits of $4,000 and $6,000, and an $1,800 balance on the first one. The maths works the same in any currency.

• Before closing: $1,800 ÷ $10,000 = 18%
• After closing the $6,000 card: $1,800 ÷ $4,000 = 45%

You don’t owe a cent more. But the ratio has more than doubled. If you owe nothing on any card, this doesn’t apply to you. For the full picture, see how credit utilisation works.

Length of credit history

Some scoring systems count how old your accounts are. Close your oldest card and, over time, the average age of your accounts can drop. How much that matters depends on the scoring model and the country.

A backup for emergencies

Some people keep an unused card with a zero balance as a fallback. Others would rather have an emergency fund, so a surprise bill never turns into card debt in the first place. That one comes down to how you feel about having credit sitting there.

Other things to check before closing

Move any automatic payments first. Subscriptions or bills charged to the card need a new home, or they may fail. Check your rewards or points too, because they’re often lost when an account closes. If there’s a promotional balance on the card, closing may affect that rate, so read the terms.

Think about timing. If you’re about to apply for a home loan or other major credit, some people prefer not to change anything on their credit file until that’s done.

As for the process, it depends on the provider. The steps are usually in your account terms or online banking. Once it’s done, a final statement showing a zero balance confirms it.

Middle-ground options

You don’t have to choose between closing and keeping. Some people keep the card but put it away somewhere, or delete it from their online shopping accounts. Some move to a no-fee version of the same card type where one exists, which may keep the account history intact. Others put one small regular bill on it and pay that off in full each month, so the card stays active.

One catch: some providers close cards after a long stretch of no use. Your terms will tell you whether that applies.

Common questions

Does closing a credit card hurt your credit?

It can. Mostly through higher utilisation if you carry balances on other cards, and in some systems through a shorter credit history. The effect varies from person to person and between scoring models.

Should I close a credit card with a zero balance?

That depends on the card’s fees, whether it tempts you, and whether you have balances on other cards. With no other balances, the utilisation effect is small or nothing at all.

Can I close a credit card that still has a balance?

You can often stop using it. But the balance still has to be repaid, and it may keep collecting interest. Our guide to paying more than the minimum covers clearing it faster.

Try it

Got a balance on the card? See how long it would take to clear in the credit card payoff calculator. To see all your debts together, find your Freedom Date.

General information only, not financial advice. Your situation is your own.