Closing a Credit Card: What It Means for Your Credit Score

Thinking about closing a credit card? Maybe the annual fee feels like a waste, you’re tempted to overspend, or you simply don’t use it anymore. Before you cut it up and call your bank, it’s worth understanding how that decision can affect your credit score.

Closing a card can sometimes drop your score even if you’ve been a model borrower. It changes how much available credit you have, alters your credit history length, and can even affect your overall credit mix. But it’s not always bad news. In some cases, closing your card makes perfect sense, and with the right strategy, you can close your card while keeping your credit score healthy.

This guide breaks down why closing a credit card affects your credit score, when it’s smart to do so, and the safest way to go about it. You’ll also see when it’s better to keep a card open and alternatives that might give you the same benefits without hurting your credit.

How Closing a Credit Card Affects Your Credit Score

Closing a credit card mainly affects two areas of your credit score:

• Higher credit utilization: Your credit utilization measures the percentage of your available credit that you’re using. By closing a card, you reduce your total available credit limit. Closing a credit card could lower the amount of overall credit you have versus the amount you’re using, which drives your utilization ratio up. Credit scoring models tend to reward a low utilization (generally under 30% of your limits), so an increased ratio may cause your score to drop.
• Shorter credit history: Scoring formulas also consider the length of your credit history and the average age of your accounts. If the card you close is one you’ve had for a long time, cancelling it can reduce the average age of your accounts over time. In general, models favor long-standing credit accounts, so closing an old card can have a negative effect on this aspect of your score. The impact will be smaller if you have other older accounts to offset the change (for example, if the card you closed was not your oldest).
• Credit card churning: Closing a credit card can also be seen as credit card churning by some organizations, which means frequently opening and closing credit accounts to take advantage of short-term rewards or offers (such as welcome bonuses). This impacts your credit score by reducing your average account age and potentially increasing your credit utilization ratio, both of which can lower your score and hurt your relationship with banks.

Keep in mind that closing an account doesn’t erase your past payment history. If the account was in good standing, it will remain on your credit report for years after closure, continuing to contribute positively to your credit history. While closing one card occasionally is fine, avoid doing it too often, as it can be seen as credit card churning. 

Reasons You Might Consider Closing a Credit Card

Despite the potential credit score downsides, there are some valid reasons to cancel a credit card:

• High annual fees: If you’re paying a high annual fee on a card you don’t use, cancelling it can save you money. It doesn't make sense to pay for a card that isn’t giving you value. So always evaluate the pros and cons of the credit card annual fee you are paying.
• Overspending temptation: For some people, having too many credit cards makes it easier to overspend. Closing an unused credit card might remove the temptation and help you stick to your budget.
• Better alternatives: You might have found the best credit card in Canada for you with richer rewards, lower fees, or other perks. In that case, you may decide to close the old account and switch to a new card that suits your needs. Similarly, if you’re unhappy with a card’s customer service or features, it can make sense to cancel and use a different product.
  
  

Before closing a card, weigh these reasons against the potential credit score effects. If a card has no annual fee and isn’t causing any harm, you might consider keeping it open to help your credit. An unused open card still contributes to your available credit and lengthens your credit history. 

Note that if a card remains idle for an extended period, the issuer may eventually close it due to inactivity. To avoid this, use the card occasionally for small purchases and pay them off on time. Alternatively, consider using the card’s lock feature if available. Enabling a credit card lock stops new charges on the card without closing the account. This keeps the account open while preventing unwanted spending. (Note, locking your credit card won’t directly hurt or help your credit score, since the account remains open and its status isn’t reported to credit bureaus.)

How to Safely Close a Credit Card 

If you’ve decided that cancelling a credit card is the right move for you, there are steps you can take to protect your credit score as much as possible. Consider this checklist before and after you close an account:

1. Pay Down Your Balances: First and foremost, pay off the card you plan to close, and ideally, pay off all other credit card balances you have. By zeroing out your balances, you ensure that when the card’s credit line goes away, your utilization ratio won’t spike. If all your cards report a $0 balance at the time of closure, you can often avoid any score drop from utilization changes. (Tip: check your statements or online account to confirm the balance is fully paid, and stop any recurring subscriptions on the card.)
2. Use or Transfer Your Rewards: If your credit card has any cashback, points, or airline miles, redeem them before closing the card. You might lose those rewards once the account is closed. Some issuers even allow you to transfer points to another card’s loyalty program. Bottom line: make sure you don’t leave freebies on the table.
3. Consider a Downgrade or Product Switch: Instead of outright cancelling, see if your bank can product switch you to a no-fee card or a different card in their lineup. This way, your account history continues (same account, new product) and you avoid closure. For example, if you have a premium travel card with an annual fee that you no longer want, the issuer might let you convert it to a basic no-annual-fee card. You’ll keep the credit line open, preserving your credit length and available credit, but stop paying the fee. It’s a win-win situation if available. Ask your credit card issuer about this option.
4. Time Your Closure (If Possible): Try not to close a card right before applying for a big loan (like a mortgage) or another credit card. A recent account closure could coincide with a dip in your credit score, which is not ideal when you need your score to be as high as possible. If you know you’ll seek new credit soon, it might be safer to postpone closing any cards until after the application. Also, closing a card doesn’t remove any negative history on that account (like late payments) – those will remain on your report for up to 7 years. If you were hoping to “wipe clean” a bad credit history by closing your account, that won’t work; you’re usually better off keeping the account open and building a positive payment history on it.
5. Contact Your Issuer to Cancel: If you’re ready to proceed, call your credit card’s customer service and let them know you want to cancel. Verify that the card’s balance is zero. They may try to convince you to stay (sometimes even offering retention incentives like waiving the fee for a year). If you’re unsure, you can take a retention offer and keep the card open a bit longer. But if you’re set on cancelling, politely confirm the closure. Finally, follow all instructions outlined in the closure process (some issuers might ask for a written request, though that’s less common these days).
6. Check Your Credit Reports: A month or two after cancellation, get an updated copy of your credit report (you can get it for free in Canada through Equifax or TransUnion or via other complimentary services) to ensure the account is marked “Closed” and shows a $0 balance. Also verify that the credit report insights are correct – occasionally, an error could pop up, like the account showing as closed with a balance (which would be bad). If you spot any issues, dispute them with the credit bureau. Assuming all is correct, you’re done – just keep an eye on your score and continue good credit habits moving forward.

Final Thoughts

Closing a credit card isn’t always a bad move, but it’s not a decision to take lightly. It can change your credit utilization, shorten your credit history, and temporarily decrease your credit score. That said, closing a credit card might be the right choice if your current card’s fees outweigh its benefits or if you’ve simply found a better alternative. The key is to approach closing your credit card carefully. To do so, pay off any balances, use up rewards, and consider downgrading instead of cancelling first. By planning ahead, you can protect your credit score and make sure the move supports your long-term financial goals.

Read More: Improve Your Credit Score