Can Closing a Credit Card Hurt Your Credit Score if You Have Stellar Credit?

Financial experts like Dayana Yochim of The Motley Fool tell consumers not to cancel credit cards because it will hurt their credit rating, but closing a credit card account might have no effect on your credit rating -- at least in the short-term -- if you already have stellar credit. However, there is no need to close to your account if you can manage credit well.

Identification

Nobody knows exactly how anything effects the credit scoring formula developed by the Fair Isaac Co., because it is a trade-secret, but the best case scenario is that it has a nil impact on your credit rating. The most damaging effect closing a credit card can have on your credit report is raising your credit utilization ratio -- the portion of your credit limit you use. If you have a FICO rating of 780 or higher, closing an account and shifting the balance to a new card and maxing out its limit can damage your rating by 45 points or more.

Length of Credit History

Closing a credit card probably won't effect your length of credit history, worth 15 percent of your FICO rating, for several years. When you close an account, it stays on your credit report for at least 10 years if it is positive, so you won't lower the average age of your accounts. However, once the account falls off your report you will lose the history on it, so it could raise or lower the average age of your accounts depending on how long you had the account.

Considerations

If you have an excellent credit rating and do not carry a balance on the card, your score likely won't take a hit after closing an account. Canceling the card might be a good idea if it has a high interest rate or you feel tempted to use the card and carry a balance. Having more than seven credit cards on credit report is negative, but you need a few cards for every installment loan, such as a mortgage or auto loan, for a good variety of credit, according to Yochim.

Warning

If you still decide to close the account, pay off the balance first. Missed payments hurt your credit score even after you request the lender deactivate the card. Also, ask the lender to list the account as closed at the request of the user. Although the reason for the account closing does not affect your rating, an account closed by the lender looks worse in case of a manual review of your credit history.