How long should you keep a credit card account open?

Quick insights

• You should weigh the pros and cons before deciding to close a credit card account, as doing so could have consequences on your credit score.
• Closing a credit card could be the right choice for you, like if a card has a large annual fee or you’re no longer using it.
• You might want to consider alternative solutions that can help you manage your finances without closing the account and negatively impacting your credit score.

Few people open a new credit card with the goal of cancelling their account in the future, but there are a number of reasons why doing so might make sense for your current personal and financial situation.

How closing a credit card account affects your credit

Closing a credit card might be a smart choice for you, but it’s worth considering how that could negatively impact your credit score:

• Credit history: Closing a credit card account can negatively impact your credit score, because each account closure is reflected in your credit history. Lenders frequently view borrowers with longer credit histories as less risky than newer borrowers.
• Age of credit: The age of your credit is determined by the average age of all your credit accounts. Closing an older credit card could decrease the average age of your credit, which could lower your credit score. The cumulative age of your accounts typically makes up 15-20% of your credit score.
• Credit utilization ratio: Credit utilization ratio refers to the percentage of your total available credit that you are currently using. Every account opening or closing impacts your credit utilization ratio, as it increases or decreases your total available credit. Credit utilization is one of the biggest factors impacting credit score, accounting for 20-30% of your credit score calculation.
  For example, if you have a credit limit of $10,000 across multiple cards, and you hold $2,000 of unpaid debt, your credit utilization ratio is 20%. But if you close an account with a $5,000 credit limit while still holding that $2,000 worth of debt, your credit utilization increases to 40%. A common rule of thumb is to keep your credit utilization ratio below 30%.
• Future lending: Closing a credit card can impact your ability to obtain future credit. Lenders may view a closed credit card account as a sign that you had trouble managing credit in the past. Accounts closed after a year or less might signal to lenders that you are a risk for “credit card surfing,” which is a practice many lenders typically try to discourage.

Circumstances where closing your credit card account may make sense

While there are likely credit score impacts to closing your card, doing so can also be beneficial in certain situations, such as:

• Annual fee: A credit card’s annual fee is one of the most common reasons for closing an account. If your credit card has an annual fee, but you no longer use the benefits enough to justify paying it, account closure might be a sensible option.
• Income reduction: If your income decreases due to job loss or other factors, you might have trouble managing your credit card payments. In this case, closing the account can help you avoid accruing more debt.
• Spending reduction: If you are no longer using your credit card(s), one solution might be to close the account(s). That said, there are other options – such as a credit card lock – that can help reduce the risks of fraud or spending more while preventing the credit score impact of cancelling the card(s).
• Other life changes: Major life changes, such as retirement or a change in marital status, can also justify closing a credit card account – especially if your account was shared jointly with someone with whom you no longer have a relationship.
• Starter card: If you opened a starter credit card when you were first building your credit and have since obtained other credit cards, it may make sense to close the starter card. That said, many lenders offer the option of upgrading the card rather than closing the account in order to maintain the age of your credit.
• Organizing/streamlining finances: If you have multiple credit cards and want to simplify your finances, closing some accounts can help.

Alternatives to closing your credit card

As referenced above, there are alternatives to closing your credit card that can help you manage your finances while also helping you to avoid an impact to your credit score. Now that we’ve gone over the pros and cons of credit card account closure, let’s examine some of the other options instead of closing your card:

• Small occasional usage: Instead of closing your credit card, consider using it for small, occasional purchases that you can pay off in full each month. You can also designate cards specifically for recurring payments, and then not use it for anything else.
• Upgrade options: As mentioned in reference to starter cards, some lenders may have the option to upgrade your card to a different one to avoid reducing the overall age of your credit.
• Downgrade options: If your credit card has a high annual fee, consider asking the issuer if you can downgrade to a card with a lower or no annual fee option instead of cancelling outright. This option could also help avoid a negative impact to your age of credit and credit history.
• Debt consolidation: If you're struggling to manage multiple credit card payments, consider consolidating your debt onto one card with a lower interest rate. It may help to look for credit cards with low or 0% introductory APR for balance transfers.

Bottom line

Deciding whether to keep your credit card open is an important personal decision that should be based on your individual financial situation and goals. Consider the impact on your credit history, credit score, your current financial situation, and the alternatives available before deciding.