Will Closing Credit Card Accounts Help Your Credit Score?

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Quizzle is a Knowledge Partner on Yahoo! Answers and frequently helps folks there with questions about personal finance and credit. One question that seems to come up frequently is: will closing credit card account boost my credit score?

The short answer is generally, no. Roughly 30 percent of your credit score is “amounts owed,” which includes the proportion of how much credit you use (total of all credit balances on your credit report) compared to how much credit is available to you (total of all credit limits on your credit report). The lower this proportion, the better.

If you have a bunch of credit available to you but don’t use a whole lot of it, it’s an indication that you’re able to responsibly manage your debt-load, which will figure positively into your score. However, if you close accounts, this proportion will rise and as a result, your credit score may fall.

For example, let’s say you have two credit cards. One has no balance and a credit limit of $5,000. The other has a balance of $10,000 and a credit limit of $15,000. In this scenario, you’re using 50 percent of the total credit available to you:

Balance 1 = $0
Balance 2 = $10,000
Balance total = $10,000

Limit 1 = $5,000
Limit 2 = $15,000
Limit total = $20,000

Balance total/limit total = $10,000/$20,000 = 0.50 or 50%

Now, let’s say you close the first credit card because you figure, hey, I don’t use it anyway. Now, you’re using 66.67 percent of the total credit available to you:

Balance 2 = $10,000
Balance total = $10,000

Limit 2 = $15,000
Limit total = $15,000

Balance total/limit total = $10,000/$15,000 = 0.67 or 67%

Because you didn’t have a balance on the first card, it didn’t affect your balance total. However, the credit available to you on that card was $5,000, which did factor into your limit total. When you closed the account, that $5,000 is taken away from your limit total, resulting in a higher proportion of credit used to credit available, and likely a ding to your credit score.

Credit math aside, if you feel like having several credit card accounts open is too much of a temptation and you’re not sure you will wisely use the credit available to you, closing an account or two may be an option. However, there are other ways of curving the craving that you should consider first to save your score. Why not take some scissors to that charge card burning a hole in your pocket?

Or, some folks will actually freeze their cards. If you find you have a tendency toward impulse buying, put your card in a plastic baggy full of water and stick it in the freeze. That way, when you’re thinking of buying the latest gizmo or fashion trend, you have to unfreeze the card first to get at the numbers, which may give you time to think over the purchase and reconsider.

Weighing whether to close a credit card account is probably a good indication that you’re making an effort to be responsible with your credit, so pat yourself on the back for that! As we’ve learned, there are other, more ideal options to save your credit score then closing those accounts. Instead, consider not using the cards at all (but keeping the accounts open) or cutting them up so you can’t possibly use them.

To find out how your credit’s faring, create a Quizzle account and we’ll give you a (totally) free credit report and score.

  • John Ireland

    Recent news articles indicate bank credit cards will soon begin charging an annual fee in the range of $35 to $50 if credit cards are not used often enough. How would this change your advice?

  • http://www.quizzle.com Ann-Marie Murphy

    Hi John – Great question! I’d still recommend keeping the credit card account open, but charging small amounts on that card monthly to avoid the non-usage fees. For example, I have one credit card that I use just for gas. The monthly balance is never that high, which I always pay off in full, and it allows me to maintain my credit history on that card.

  • http://quizzleblog randal

    how do you feel about Dave Ramsey’s view of completely being debt free and not using any more credit and cash only?
    i have found you cant get around without having use some form of credit.
    the key is to learn to be responsible and learn to say no to buying impulses.

  • Aimee

    Thank you so much on your explanation of closing an account or keeping it open is good or bad. I have a better understanding of how a credit score is graded.

  • Kumar

    Sir,
    Iam 50 years old Ihave three credit cards now Iam unemployed
    I am unable to maint the card in my budget.
    how to apply for my credit card cancel an dsend me to cancelation draft letter.

  • http://feedbackQuizzle Cheryl

    I have a Bank of America credit card I do not use ever. They are charging me 1.50 per month to keep it. Over long term, I feel this is wasting money? i am considering my credit score which is near perfect at this time. I am 53 and my husband makes the money here. I work a bit from home. Should I cancel or just pay the monthly fee?