I recently had someone tell me they were going to close a few of their credit card accounts because they didn’t use the cards anymore, and this would improve their credit scores.
This is a common misconception. In fact, a NerdWallet survey found that nearly half the people with credit cards – 48% – believe getting rid of credit cards will boost their credit scores.
“Closing cards can’t help your credit score, and it could hurt them,” said NerdWallet personal finance columnist Liz Weston. “That doesn’t mean you never should close a card, because you might not want to pay the annual fee, or it might not be something that you want to monitor. But don’t think you can get rid of bad information or do your score any favors by closing cards.”
Closing a card could lower your credit score because you lose the credit associated with that card. That makes your “credit utilization” – how much of your available credit you are using – go up, and that can make your scores do down.
“You’re narrowing the gap between the amount of credit you use and the amount of credit you have,” Weston said. “Longer term, the age of the card matters, and that can hurt your score if that goes away. But the big impact is from the credit utilization, the credit limit that you’re losing.”
If you plan to close a credit card account, make sure you don’t do it right before you apply for credit, such as a mortgage or car loan.
More Info: Credit Score Myths vs. Reality: Don’t Let These Common Misconceptions Hold You Back (This story contains a link to the Consumerpedia podcast “To Your Credit: How Credit Scores Work,” featuring Liz Weston.)
