Does Canceling Old Credit Cards Hurt Your Credit Score?

by Herb Rim

If you have credit cards you rarely use that charge annual fees, you may be tempted to cancel them. But will closing those accounts damage your credit score?

Financial experts say canceling cards can lead to a temporary credit score drop, but it's usually worth it to avoid paying those pesky annual fees year after year. Here's a closer look at how closing cards impacts your credit score and some tips for minimizing any hit.

Why Canceling Cards Lowers Your Score

Your credit score is heavily influenced by your credit utilization ratio, which measures how much of your total available credit you are using across all your cards and loans. Using a higher percentage hurts your score. When you close a credit card, you reduce your overall credit limit, causing your utilization ratio to rise if you carry balances on other cards.

For example, if you have three cards each with a $5,000 limit and one has a $3,000 balance, your utilization is 20% ($3,000 out of $15,000 total credit used). Close two of the cards, and suddenly you're using 60% of your available $5,000 credit limit. That spike could ding your score by 50 points or more.

Canceling cards also impacts your credit age and mix of credit types, two smaller scoring factors. So while closing one account may only cause a small, temporary score drop of 10-30 points, the damage can be more significant if you close multiple cards at once.

When It's Okay to Cancel Cards

While it's smart to be mindful of your credit score, avoiding wasteful annual fees takes priority. As personal finance expert Rod Griffin says, "people can get so focused on their credit score that they end up making poor overall financial decisions."

If those annual fees provide no meaningful value to you, canceling cards is usually the right move for your finances despite any short-term score impact. Your credit should rebound within a few months once your utilization ratio stabilizes.

Just avoid major credit applications like mortgages until your score recovers if you've closed multiple accounts. And apply for any new cards you want before closing the old ones so you can maximize your approval odds.

How to Minimize Credit Score Damage

To limit any credit score drop from card cancellations, take some proactive steps first:

- Pay down balances on remaining cards to reduce overall utilization

- Request credit limit increases on your other cards before closing accounts

- Space out card closures over 6 months instead of all at once

- See if issuers will downgrade annual fee cards to no-fee versions instead of closing

With some careful planning and the temporary drop in perspective, you can ditch those outdated, expensive cards without overly penalizing your credit score. Focus on the long-term benefits to your bottom line from eliminating recurring annual fees you no longer want to pay.

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Herb Rim

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