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11 Reasons You Should Not Close A Credit Card

by Violet WillettSeptember 2, 2021
11 Reasons You Should Not Close A Credit Card

People often close their credit cards believing they are helping their credit score. In reality, it is really detrimental. This may come back to bite you if you plan on taking out a loan. Aside from this,  they are also missing out on many benefits they could be availing.

We talked to the experts and here are the top reasons they advise against closing a credit card;

“People often have reasons for closing a credit card. Perhaps they think it will help them to improve their credit score, or maybe they're sick of getting new offers in the mail from that company.” says Benjamin Stenson, “Doing so could be a bad idea;

  1. Closing A Credit Card Increases Your Debt-to-Credit Ratio

“One reason why closing a card could be a bad idea is because it gives you the feeling that you're paying off your debt. Although closing a credit card does lower the amount of available credit, it doesn't reduce the total money you owe on your cards. This means that your debt-to-credit ratio will be much higher than it was before. Moreover, if a person closes one of their cards, they might not be able to pay for all the expenses they used that card for. If so, it could damage their credit score even more. This is true because they will have less of a buffer from closing one card.”  (Benjamin Stenson)

  1. Lose Points and Miss Out On Incentives

“Most credit card companies offer loyalty incentives, such as free airline miles or points for every dollar spent. If a person closes one of their credit cards, they won't earn as many points and will miss out on those incentives.”  (Benjamin Stenson)

  1. Harder to Keep Up

“Plus, it would be more difficult and time-consuming to keep up with one card rather than several. The person might have a higher chance of forgetting about a payment, which could hurt their credit score.” (Benjamin Stenson)

  1. Lowers the Average Age of Accounts

“Closing a credit card might also lower a person's average age of accounts. This refers to how long the credit card company has been your lender. If a person closes an account, it will decrease the average age of their accounts, this can hurt a credit score.”

Benjamin Stenson, Financial Advisor and Accountant The Norsemen

  1. Can be Handy

“I usually tell my clients to keep one or two credit cards active, even though I am also helping them to manage and get rid of debt. Though it sounds counter-productive, I find credit cards may be handy and helpful when used and managed well.” (Edward Eugen)

  1. Emergencies

“Emergency Situations may arise when you run out of cash, but need to pay for something urgently. For example, you’re in the mall and your pants ripped or your shoe heel broke. Instead of having to do the walk of shame on the way home, you can use your card to buy new pants or shoes.” (Edward Eugen)

  1. Increase Your Financial Score

“With regular use and regular on-time payments, credit cards help to increase your financial credit score, for the bigger money matters later on, such as taking out a loan for a house or a car.”

Edward Eugen, Founder 10Beasts

  1. Impact on Credit Card Utilization

“When closing a credit card my primary concern is the impact that my credit card utilization will receive. You always want to keep your credit card utilization under 30%. If you have five credit cards and four of them have a balance but you close the one that doesn't, your credit card utilization will increase since you are using a percentage of every credit card you own thus lowering your credit score.”

Dom Lucre, Founder of Credit Cadabra

  1. Dire Implications on Your Credit Score

“Rather than closing a credit card completely, the best bet (at least in the context of a credit score) is to use it sparingly and pay off balances in time; consistent use of a card like this bodes well for a credit score, whereas closing a credit card will have a short term bad implication on your credit score. 

“Also if it's a card with any rewards then you can accrue rewards for just normal shopping the kind of day to day stuff you would not be rewarded for using a debit card. If the card has a large annual fee, you can speak to your bank about lowering or removing it (with the threat of cancelling it.) In most cases this will work and they'll drop the fee for the next year at least when you can make the same call again and likely get the same result.”

Alex Beck, Founder of clarafinds.com, a fintech comparison site for consumers and SMEs.

  1. Credit History and Credit Utilization

“The primary reason why you should not close your credit card account is that two of the most influential factors that make up your credit score are your credit history and your credit utilization. 

“The people with the most excellent credit scores are those that have the longest credit history, ideally more than 20 years. This represents long-standing reliability and record of being a good borrower of money to creditors. Therefore, having a credit card account that is unused but is several years old shows greater borrowing ability and as a result, you should not close your account as it will shorten the average age of your credit. 

“Secondly, you should always try to maintain a credit utilization of less than 30%. So, for example, if you have a 1000 limit on a card, you shouldn't look to use more than $300 a month. By canceling a credit card, you are reducing your limit while perhaps maintaining your usage on other cards, which results in your credit utilization increasing. 

“A high credit utilization rate is an indicator to creditors that you rely heavily on credit which may mean you are less likely to pay back money so your credit score will become lower. 

Overall, you should not cancel your credit card accounts unless you are struggling with self-control and having a credit card is putting you at financial risk.”

Scott Nelson, Founder, MoneyNerd

  1. Closing A Credit Card Makes You Appear as A Financial High-Risk

“Closing a credit card, unless absolutely necessary for your financial situation, can lead to harmful financial issues. Lenders like to see that you can handle multiple forms of debt, including loans and credit cards at the same time. If you start to cancel credit cards, it can indicate that something is wrong with your financial situation, making you a more high-risk lender.”Michael Fischer, Founder of Elitehrt

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