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How Closing Credit Cards Affect Your Credit Score

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Part of managing credit cards involves making decisions about closing them. Before you pick up the phone to call your credit card company, take some time to learn what will happen to your credit score if you close the card.

Closing credit cards never raises your credit score. Closing the credit card won't erase the card's history from your credit report, nor will it keep the history from being included in your credit score calculation. So, if you're closing a credit card to increase your credit score, think again, because that tactic won't work.

Because there are so many different statements about how closing a credit card affects your credit score, I spoke with Craig Watts, Public Affairs Director at FICO to clear up some misconceptions about what happens to your FICO when you close a credit card.

About Credit/Debt: In terms of credit utilization, does closing a credit card hurt your FICO score? Will your credit utilization go up because you closed a credit card that still has a balance?

Craig Watts: Because the person's credit report will continue to show an active outstanding balance for that account - even though the account has been closed - the FICO formula will continue to include that account in its calculation of utilization rate.   As the consumer pays down that account's outstanding balance, the decreasing balance should have a positive effect on the person's utilization rate and FICO score, everything else being equal. Once the outstanding balance is reported on the credit report as zero, the FICO score will no longer include that closed revolving account in its calculation of utilization rate. Just to be clear, the formula always tries to include any open revolving accounts in its utilization rate calculations, whether those accounts have outstanding balances or show a zero balance.

About: What about credit age? It is widely-reported, even among some reputable websites (including me) that closing your oldest credit card lowers your credit age thereby lowering your FICO score. Is that true?

Craig: We helped perpetuate that myth a little bit. In the old days, we were way too cautious [about the effect of closing an old credit card]. The FICO score calculation looks at both open and closed accounts. As long as the account history is still on the credit report, it’s included in the FICO score. The catch is that at some point, credit bureaus remove accounts from account. Each credit bureau has their own internal structure for removing accounts, but it’s something like ten years. So, that’s not something you have to worry about for at least a decade.

About: When the credit card issuer closes a credit card, there’s often a comment left on the credit report, “Closed by credit grantor.” Is there anything about that comment that hurts one’s FICO score?

Craig: No. It doesn’t matter who closed the card.

In short, your credit score could be affected by closing a credit card if
  • The card still has a balance.
  • It still has available credit when your other cards don't.
  • It was the first card you ever opened (though this won't matter for about 10 years)
  • You don't have any other credit cards

For your credit score's sake, it's important to evaluate your decision to close a credit card before taking action. Read Five Credit Cards You Should Never Close to help make a reasonable decision.

Interview with Craig Watts done on May 13, 2009.

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