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What Are the Pros and Cons of Closing a Credit Card?

Closing a credit card may seem like a no-brainer, but it's important to weigh the pros and cons.

Morgan Sliff

Contributing Writer at Tally

January 25, 2022

If you have an unused credit card living in your wallet, you may be tempted to snip it into tiny pieces and close the account for good. But before you grab the scissors, you may want to figure out if closing the account works to your advantage. 

Closing a credit card account may harm your credit score, so it's important to fully understand what happens when you close a credit card before you rush to any decisions. 

In this article, we'll explore the pros and cons of closing a credit card and how to safely close an account if you choose to do so. 

The pros and cons of closing a credit card 

Sixty-one percent of American cardholders have closed at least one credit card, according to a survey conducted by Bankrate. If you’ve paid off an outstanding balance or found an old credit card that’s still, you may be tempted to close it. But, doing so will impact your credit report and may have an impact on your personal finances. Let's take a closer look at the pros and cons of closing a credit card. 

The pros of closing a credit card 

Here are some of the benefits associated with closing a credit card.

You can potentially avoid fees

Credit card fees can sneak up on you. For instance, you may have opened a card with a promo offer, only to realize a high annual fee is associated with the card. After a few years of using a credit card, you may get irritated by the costs that stack up just to keep it in your wallet. If you don't use the card frequently or earn perks from a travel or cashback rewards program, you could save money by closing the card. 

It reduces the temptation to spend 

Credit card debt is a serious issue that can create hardships for countless individuals and families. Spending on credit is easy, but many who go into debt don’t realize that paying it back can be an exceedingly hard uphill battle with high-interest rates and fees. 

As such, some may want to remove the temptation of a credit line altogether. Once you pay off a credit card balance, you may want to close the card to avoid the chances of overspending and falling back into debt. 

It could help with a divorce or separation proceeding 

When a couple separates, it’s common to untangle joint financial assets. If you have a shared credit account with a partner, you may want to separate yourself from the other’s spending habits. Doing so may also be required by the courts. 

The cons of closing a credit card 

Closing credit cards can impact your credit score rather significantly. For context, it's important first to understand the factors that go into your credit score. There are two types of credit scores: FICO Scores and VantageScores. 

Your FICO credit score is calculated based on the following factors and weightings: 

  • Payment history: 35% 

  • Amounts owed: 30% 

  • Length of credit history: 15% 

  • Credit mix: 10% 

  • New credit: 10% 

VantageScore doesn't define the exact percentages they use to determine scores. But here is the breakdown of factors and how influential they are: 

  • Total credit usage, balance and available credit: Extremely influential 

  • Credit mix and experience: Highly influential 

  • Payment history: Moderately influential 

  • Age of credit history: Less influential 

  • New accounts: Less influential

Keeping these factors in mind, let's take a closer look at the possible cons of closing a credit card. 

Your length of credit history may be reduced 

The length of your credit history accounts for 15% of your FICO credit score. The older your accounts, the greater the benefit. In the eyes of lenders and credit card issuers, the longer your credit history, the more you can be trusted with borrowed funds. 

So, if you’re closing your oldest account, you may end up harming your credit score. Keeping the credit card open could be in your best interest, especially if you’re looking to build credit in anticipation of an upcoming purchase, like a car or a home. 

You may impact your credit mix 

Lenders also want to see that you have different types of credit on your profile. This can include credit cards, student loans, car payments and mortgages. 

If you have multiple credit cards, closing one shouldn’t impact your credit mix. But if you only have one credit card, you may want to consider keeping the account open. Otherwise, the closed account may disrupt your credit mix and your score. 

You will lower your credit utilization rate

Your credit utilization ratio compares the amount of debt you have versus the total amount that has been made available to you by lenders. 

For example, let's say you have two cards with credit limits of $5,000 each. Your total available credit is $10,000. If you spend $3,000 on each card, your credit utilization rate is 60% ($6,000 divided by $10,000). You want to keep your credit utilization ratio under 30% as a general rule of thumb. 

By closing a credit card, you reduce your total credit available. This, in turn, may drive up your credit utilization rate, depending on how much debt you’re carrying.


How to safely close a credit card

If you’ve weighed the pros and cons of closing a credit card and decide it’s in your best interest to do so, here are the steps you should take to help minimize your risk.

1. Redeem cash back or points you’ve racked up

Once you close the credit card, you can likely say sayonara to any benefits tethered to your account. Redeem any miles, points or cashback rewards you’ve attained. You may be able to put these toward gift cards or a statement credit. 

2. Make arrangements with authorized users

If anyone else is attached to the account, be sure to inform them to stop making purchases and prepare for other payment arrangements.

3. Turn off or switch over automatic payments

It’s easy to set it and forget it when using automatic bill pay. To ensure that you don’t end up with late fees for missed bills, review all automatic payments on the account and switch them over to an open account.

4. Pay off or transfer your balance

Pay off your entire balance or use a balance transfer to move to another card. 

5. Contact your credit card company to confirm your clear balance

Just because you paid your balance doesn’t mean you won’t be hit with a surprise interest fee. After you pay down or transfer your balance, call your creditor to ensure that there won’t be any additional payments.

6. Close the account

After confirming a zero balance, request the account be closed. You can do so online, but you'll also want to follow up with your credit card company in writing. 

7. Safely get rid of your card

It’s time to finally grab that pair of scissors. Or better yet, use a heavy-duty shredder to get rid of your closed credit card. 

Make a smart decision when closing your credit card 

There are many pros and cons of closing a credit card, and it's important to weigh them when deciding to close an account. If you’re looking to build a good credit score, closing the card can end up doing more harm than good. 

If you need help paying down debt on your current credit cards or making an on-time payment, Tally† can help. Tally is a credit card payoff app that will manage your payments for you and help you pay down debt quickly and efficiently with a lower-interest line of credit.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.