When to Close a Credit Card

The plain answer

Close a credit card when the account has a fee you will not use, a high ongoing cost, or a risk you do not want. Keep it open when it is free, you can pay it in full, and the limit helps keep your reported balances low relative to your total limits.

The tradeoff is a cleaner wallet versus a possible score dip. Utilization, which is balances divided by limits, can jump when a limit disappears.

How it actually works

Credit reports list open and closed accounts. Closing a card does not erase the history overnight. The account usually stays on the report for years, but the limit no longer counts toward available credit once the account is closed.

If you still have a balance, closing does not cancel the debt. You still owe it, and interest can continue under the card agreement.

A product change, which keeps the same account with different features, can remove an annual fee without closing the line. Issuers do not always offer one, and the new terms can be worse.

What this means for you

Pay the card to zero first. Then ask about a no-fee product change before you close. If you close it, wait until other limits can absorb the utilization change, especially before a loan application.

Do not close your only card if you still need a way to pay and build history. Do not keep a fee card solely because you are afraid of a score change. A fee you will not recoup is a real cost.

Common mistakes

Closing a card with a leftover balance and treating the problem as solved.

Closing several cards at once before a mortgage or auto loan.

Keeping an unused fee card “for the history” when a product change would keep the history without the fee.

Related pages

• Annual Fees: When Are They Worth It
• How Many Credit Cards Should You Have
• What Actually Improves Your Credit Score