The CFPB lists fees that outweigh benefits as a good reason to close.
Close a card when it costs more than it gives. Do not close it to raise your score.
When closing a credit card makes sense, what it can do to your credit score, the alternatives to closing, and the steps to close an account cleanly.
Closing a card can be a good step when its annual fee or terms outweigh its benefits, or when it helps you avoid debt you cannot pay. Do not expect it to improve your credit score. The CFPB says closing a card can lower your score by raising the share of your credit you use, though the change may be small or temporary.
Apply this to my walletUse the signal, not the slogan.
Avoiding new debt is worth more than a few points.
Keeping an old account with good history may help maintain a higher score.
Avoid changes to your credit profile until the loan is done.
Use this calculationUtilization after closing = total balances ÷ (total limits − the closed card’s limit)
ExampleYou owe $2,000 across cards with $8,000 in total limits, so you use 25 percent. Close a card with a $3,000 limit and the same $2,000 is 40 percent of $5,000. Paying the balances down first removes most of that effect.
What closing does to your score
The CFPB’s answer is that it depends on your situation. Do not assume closing a card will improve your score.
Part of your score is the amount of credit you use divided by the total you have available. Closing a card removes its limit from the total, so the same balances become a larger share. The CFPB says the change may be temporary or minor, and that the full effect depends on the rest of your credit profile.
Good reasons to close
The CFPB lists 3. The card has annual fees or poor terms that outweigh the benefits. Closing helps you avoid building debt you cannot pay off. You are not planning to apply for credit in the near future.
A joint card after a separation, or a card you cannot keep secure, are also sound reasons.
Good reasons to keep
The CFPB notes that some people keep an account open, especially an old one with a positive payment history, because it may help maintain a higher score.
A no-fee card costs nothing to hold. If you keep it, follow the CFPB’s tip: watch the statements to protect against identity theft and to catch unexpected fees or charges.
Try a product change first
If the fee is the problem, ask the issuer whether you can move to a no-fee or lower-fee card in the same family. This usually keeps the account open while the fee goes away.
Ask 2 questions before you agree: does the account stay the same account, and what happens to rewards I have earned?
Use your rewards before you close
Rewards that belong to the bank’s own program are usually lost when the account closes. Redeem them, or move them to another card in the same program, before you call.
Rewards already sent to an airline or hotel program sit in that program’s account, not in the card’s.
How to close a card
The CFPB’s steps: in general, call the card company, then follow up with a written notice. Your cardholder agreement may have more details, and you can find it on the company’s website or request a copy.
Move any automatic bills to another card first. Afterward, check your credit report to confirm the account shows as closed.
You still owe the balance
Closing an account does not end the debt. The CFPB says that if you have a balance when you close, you must keep paying it on schedule, and the card company may charge interest on what you still owe.
Keep making payments on time until the balance is $0 and a statement confirms it.
What stays on your report
A closed account does not vanish. The CFPB explains that positive payment history may be reported after an account is closed, and that negative information can generally be reported for up to 7 years.
So closing a card does not erase a late payment, and it does not immediately erase a good record either.
If an annual fee just posted
Call the issuer right away and ask what your options are. Ask about a lower-fee card, about any offer to stay, and about whether the fee is returned if you close or change now. Policies differ, so get the answer for your card before you decide.
Sources and scope
Check the evidence, then check the live offer.
Dean links directly to primary or government sources. Card terms and eligibility can change after the review date.
CFPB: Does it hurt my credit to close a credit card?When closing helps, when it hurts, and the utilization ratio.CFPB: I want to close my credit card account. What should I do?Official steps and what you still owe.CFPB: How long does information stay on my credit report?How long positive and negative history can be reported.CFPB: How do I get and keep a good credit score?Why a long credit history helps.