Updated: Oct 21
How canceling a card can hurt your score
It’s smart to have an idea of what closing the card would do to your credit score before you do it.
Credit limits, and how you use them, matter
Canceling your cards with the highest credit limits could potentially do the most damage. The second-biggest influence on your score is how much of your credit limits you have in use, called credit utilization. That’s calculated both per card and overall. Personal finance experts recommend using less than 30% of your overall credit limit; the highest scorers generally use less than 10%.
Here's an example: Say you have three credit cards, two with $5,000 limits and one with a $10,000 limit, for a total of $20,000. If your total balance across all three cards is $2,000, your overall credit utilization is 10%.
Canceling the card with the $10,000 limit cuts your overall credit limit in half. Then, your $2,000 balance is 20% of your limits, and that higher utilization will affect your credit score.
With credit, older is better
The average age of your credit accounts and the age of your oldest account also affect your scores, although the impact is not nearly as large as with credit utilization.
The impact of closing accounts depends on which credit scoring formula is used. FICO, which is the most commonly used formula, continues to use both open and closed accounts in calculating the age of your accounts. VantageScore, which is a FICO rival, may not. So closing an account may reduce the average age of your credit accounts and potentially lower your VantageScores.