Does Closing a Credit Card Erase Its History or Hurt Your Score?
Two very common and related credit myths are: "Closing a credit card hurts your credit score," and "When you close an account, you lose its credit history." Many people hesitate to close cards, even those with fees or poor terms, fearing a significant negative impact. Let's clarify what really happens.
Myth 1: Closing a Card Automatically Hurts Your Score
The act of closing a credit card, in and of itself, does not directly hurt your FICO score for most people. There isn't a FICO penalty or negative reason code that says, "You recently closed a credit card."
The primary ways closing a card could indirectly affect your score are:
- Utilization Changes: When you close a card, you lose its credit limit. This reduces your total available credit. If you carry balances on other cards, this can increase your overall credit utilization percentage. If this change pushes your utilization across certain FICO scoring thresholds, your score might drop. However, this drop is due to the change in utilization, not the act of closing the card itself. If your utilization remains low or doesn't cross a threshold, you might see no score change from this factor.
- Closing Your Only Revolving Account: If the card you close is your only open revolving credit line, this can hurt your score. The "Amounts Owed" portion of the FICO score considers the availability of revolving credit. Moving from having an open revolving line to having none can result in a score decrease.
So, if you have multiple credit cards and your utilization remains stable and low after closing one, the closure itself is unlikely to cause a score drop.
Myth 2: You Lose Credit History When You Close an Account
This is incorrect. When you close an account in good standing, it remains on your credit report for approximately 10 years. During this decade, it continues to:
- Contribute to your credit history: The entire purpose of the "closed accounts" section on your credit report is to retain this history for a significant period.
- Factor into your aging metrics: Your Average Age of Accounts (AAoA), Age of Oldest Account (AoOA), Age of Youngest Account (AoYA), etc., all include both open AND closed accounts. Closing an old account does not suddenly make your AAoA younger, nor does closing a new account suddenly make it older.
Credit experts point out that even if it's your oldest card, it stays on your report for ten years, continuing to age. By the time it drops off, your other accounts will have aged further, often mitigating any significant impact on AAoA, especially since the FICO scoring benefit to AAoA tends to max out around 7.5 years.
Important Note on Misleading Metrics: Some credit monitoring sites (like Credit Karma) might show an "average age of open accounts." This is a largely irrelevant metric for FICO scoring and can be misleading. Always consider all accounts, open and closed, when thinking about your credit age.
When is it Okay to Close a Credit Card?
- High Annual Fees: If a card has an annual fee that outweighs the benefits you receive.
- Predatory Terms: Cards with excessive fees or unfavorable terms.
- Unused Cards (with caution): If you have many cards and some go completely unused, banks might close them for inactivity anyway. Proactively closing one you don't need, especially if it helps you manage your finances better, is often fine, provided you maintain a healthy number of other open accounts (generally 3+ open cards is good for a strong profile).
- It's Not Your Only Card: As mentioned, avoid closing your sole revolving account if possible.
Conclusion
For most people with multiple credit lines, closing a credit card will not inherently "hurt" their credit score or erase its history. The history remains for about 10 years, contributing to your credit age. The main potential for a score change comes from how the closure affects your overall credit utilization. If utilization remains low, the impact of the closure itself is typically negligible. Focus on maintaining a healthy overall credit profile rather than fearing the act of closing an unneeded or costly card.