Should You Close an Old Credit Card? Score Effects and When It Makes Sense

The notice arrives in the mail: your card's annual fee is $95, and your oldest credit card has not bought anything in a year. You opened it 12 years ago, you now use two other cards, and every article you remember says closing old accounts hurts your score. Still, paying $95 a year for a card in a drawer feels wrong. Both instincts have some truth in them, and a few minutes of arithmetic usually settles the question.

Instead of asking whether closing a card is good or bad, ask four narrower questions in order: what the card costs, what happens to your utilization, what happens to your account ages, and whether a cheaper option exists. This article walks through them with worked examples. The numbers are illustrations, not predictions, and nobody can tell you in advance exactly how many points a closure will cost.

Start with the fee, not the score

If the card has an annual fee, the first test is purely financial. List what you actually use in a year: rewards you earn that you would not earn on another card, credits you really redeem, and any benefit you would otherwise pay for. Subtract the fee.

Here is an example. Suppose you put $2,000 a year on the card and it earns 2 percent, while your best no-fee card earns 1 percent. The extra reward is $20. Against a $95 fee, you are down $75 before you consider any credits. If the card also gives a $100 credit that you would spend anyway, the picture flips. The point is to use your own numbers rather than the marketing summary.

The CFPB lists a card with annual fees or poor terms that outweigh the benefits as one situation where closing can be a sound decision. It also lists avoiding debt you cannot pay off, and not planning to apply for credit in the near future. Those are the reasons that belong at the top of your list. Raising your score is not on it, and the CFPB says plainly not to assume closing a card will improve your credit score.

If a fee increase is what prompted the question, you have some leverage. The CFPB says that for significant changes such as certain fee increases, a card issuer generally must give 45 days' notice, and for many changes you can opt out. If you opt out, the issuer might close the account, but you would not have to repay the whole balance at once. You would still make payments until it is paid, and the required payment generally cannot exceed what it takes to repay the balance in five years or double your prior minimum payment percentage, whichever is higher.

Run your own utilization math

Utilization is your total card balances divided by your total card limits. FICO calls the broader category amounts owed and says it makes up 30 percent of a FICO Score. VantageScore 4.0 lists credit utilization as 20 percent, with balances and available credit counted separately. Whichever model a lender uses, closing a card removes its limit from the denominator.

Take an example with three cards. The card you are considering closing has a $5,000 limit and no balance. Your other two cards have limits totaling $15,000 and carry $4,500 in balances. Your utilization today is $4,500 divided by $20,000, which is 22.5 percent. After closing, it is $4,500 divided by $15,000, which is 30 percent. Same spending, same balances, and you moved from comfortably under the 30 percent mark that the CFPB suggests staying below to right at it.

Now change the balances. If you owe only $1,500 on the other cards, you go from 7.5 percent to 10 percent. That is a smaller move and a much less worrying one. The general lesson from myFICO is the same: if you must close a card, reduce your other balances first so that you do not trigger a jump in your overall utilization.

One more input is the balance that gets reported. myFICO says the balance on your statement closing date is the one issuers typically report to the bureaus, so paying other cards down before their statements close can lower the utilization a lender sees right after a closure.

Notice that the card in this example had no balance. Closing a card does not erase it from the equation if you owe money on it. You still owe the balance, and the payment history on the account still counts.

Average age is a slower story

Many people expect an instant hit to their average age of accounts. The mechanics are more delayed than that. myFICO says FICO Scores generally consider the age of both open and closed accounts, so as long as the account stays on your credit report, it may count toward your length of credit history. FICO says length of credit history is worth 15 percent of a score and considers the age of your oldest account, the average age of all your accounts, and the age of specific types of accounts.

The change comes when the closed account eventually drops off. myFICO says bureaus often remove closed accounts in good standing after around 10 years, while negative information can stay up to seven years. Once the card is gone from your report, it can no longer help the length of credit history category.

Here is an illustration. Suppose you have three cards opened 12, 8, and 3 years ago. Your average age is 23 divided by 3, about 7.7 years. If the 12-year-old card were removed from your report, the average of the remaining two would be 5.5 years. That drop is real but arrives only when the closed account leaves your report, and meanwhile your other accounts keep getting older. VantageScore describes its age and mix category as including the average, oldest, and youngest account ages, so the same logic applies.

The practical takeaway is that a card you close today still carries age benefits for years. If you are within a year or two of a major application, such as a mortgage, the utilization effect, which shows up quickly, matters more than the age effect.

Options that keep the history

Before you close, check whether the issuer will change the card instead. A product change, sometimes called a downgrade or upgrade, switches your account to a different card from the same issuer. myFICO describes it as not closing the account, so it does not shorten your credit history, and it notes that switching with your current issuer may prevent a hard inquiry. You can only switch within the same issuer, and you should check the new card's APR, fees, and what happens to any rewards you have earned.

Timing matters if the fee is the issue. myFICO notes that annual fees are usually due in the anniversary month, so try to make the change before the fee posts. Ask whether a fee already charged can be refunded, since policies differ.

If the card has no fee, you might simply keep it. A no-fee card costs nothing to hold, and its limit continues to support your utilization. The CFPB advises that if you keep an unused account open, you should watch your statements for identity theft and unexpected fees. Some issuers may close accounts that stay inactive for a long time, so a small purchase now and then, paid in full, is a common way to keep one active. Check your card agreement for the issuer's policy.

It does not matter to your FICO score who closes an account. myFICO says that when a lender lowers a limit or closes a card, utilization may rise, regardless of who closed it. That means an issuer's closure of a dormant card can have the same utilization effect you were trying to avoid, which is another reason to keep an eye on it.

Three quick scenarios

Scenario one: a free card you opened 15 years ago, with a $5,000 limit and no balance. There is no fee to avoid, the card supports your utilization, and it carries your longest history. Keep it, and use it lightly if the issuer closes inactive accounts.

Scenario two: a card with a $95 fee that you no longer use, while your other cards are running at about 28 percent utilization. Ask for a product change to a no-fee card from the same issuer. If none exists, pay your other balances down first, then close it, because losing the limit could push your ratio past the 30 percent line the CFPB suggests staying under.

Scenario three: a card you keep maxing out and paying off slowly. The CFPB says closing can make sense when it helps you avoid accumulating debt you cannot pay off. Here, the score effect is the smaller concern. Pay down what you can, close the account on purpose, and accept a possible temporary dip.

The same questions apply if the card happens to be your only revolving account. VantageScore says its age and mix category looks at the types of credit you use, and FICO says credit mix is 10 percent of a score and matters more when a report has little other information. A thin file has less room to absorb a change, so be more cautious.

When closing makes sense

Closing is reasonable when the fee clearly outweighs the benefits and no downgrade is available, when a card tempts you into debt, or when you are not planning to apply for credit soon. The CFPB also notes that closing an unused account can protect against identity theft. These are good reasons even if your score dips.

Closing is hard to justify when the card is free, the card is your oldest account, or it supplies a large share of your total available credit. In those cases, the card does more good than harm, even sitting in a drawer.

It also does not make sense to close a card to make a late payment or high balance disappear. myFICO says FICO Scores still consider payment history and balances on accounts with a closed status, so the problem stays on the report.

How to close without making it worse

If you decide to close, sequence the steps. First, pay down balances on your other cards if you can, as myFICO suggests. Second, redeem any rewards points or cash back, since the card agreement may say what happens to them when the account closes. Third, move any recurring charges to another card so you do not miss a payment.

Then call the issuer, confirm in writing that the account is closed at your request, and check your credit reports a month or two later to confirm it reports correctly as closed. You can get free copies at AnnualCreditReport.com.

Finally, avoid closing a card in the months before you apply for a mortgage or auto loan unless the fee leaves you no choice. A few extra months of holding a card is often cheaper than explaining a utilization jump to a lender.

Close an old card when the fee or the temptation costs more than the card gives you, and not to improve your score. If a product change is available, ask for it first, because it saves the money without giving up the history.