Why Does Canceling a Credit Card Lower Your Credit Score?

Cancelling a credit card may shorten your credit history.

Credit scores are based on a variety of factors, including total debt, available credit, creditor payments and the length of a credit history. When a consumer takes an action to acquire or cancel credit, it will affect an overall credit score.

Credit History

If you cancel a credit card that you've had for a long time, it will likely lower your credit score, as your overall credit history will be shortened.

Credit Ratio

If you cancel a card with no balance, but maintain other credit cards with balances, it will change your balance-to-limit or credit utilization ratio. This will show that you have less available credit, but the same debt.

Types

A small part of credit scoring is based on a mix of credit types. If you cancel all of your credit cards and don't have any other lines of revolving credit, it will lower your credit score.

Time Frame

Canceling numerous credit cards within a short period may indicate financial problems to lenders.

Considerations

Canceling a credit card will not always lower a credit score. If you have a large number of credit cards, canceling the newest card with a low available balance may actually improve your score.

References

• bankrate.com: When Cancelling a Credit Card Can Hurt Your Score
• Fair Isaac Corporation (FICO): How Closing Credit Cards Affects a Credit Score
• page TransUnion TrueCredit Learning Center: Do's and Don'ts of Cancelling Accounts

Resources

• experian.com: Deciding When to Close Credit Cards
• beyondtherate.com: Borrowing and Lending Guide