Canceling Credit Cards and Credit Score

Any event involving your credit accounts can have an impact on your credit score. Closing a credit card normally has a negative impact on your credit score, assuming that your creditors report the card closure to the credit bureaus. However, many factors impact your credit score, so closing one card has more of an impact on someone who only has a few open credit accounts than someone with multiple accounts.

History

Credit reporting agencies calculate your average length of credit account history. If you have had several credit accounts open for a number of years, that suggests that you have maintained a good relationship with your creditors. If you have only have a few credit accounts open and you have not had any of your accounts open for more than a few months, that suggests that either you are an unknown quantity as a borrower or that past credit problems caused the closure of your other accounts. Consequently, people with a long average length of account history get higher credit scores and closing your credit card hurts your score.

Reporting

Lenders are not required to submit credit reports at a particular time, but typically most creditors submit updated reports to credit agencies at least once a month. The credit bureaus use this information to update your credit report, but your score does not update until the next time a creditor requests it. Therefore, if you close your credit card today and check your own score next week, you may not notice any difference.

Non-Reporting

Experian, Equifax and TransUnion are the three credit reporting agencies that operate in the U.S. However, lenders do not have to submit reports to all three of the agencies, and some lenders that specialize in lending to people with poor credit scores do not even submit reports to these agencies at all. Closing a credit card has no impact on your credit score unless a credit agency has a record of that credit account to begin with.

Other Considerations

Paying down your credit card but not actually closing it does help your credit score because it means you have lowered your outstanding debt balance, and creditor agencies view people with lower debt levels as lower risk borrowers. However, if you pay off a delinquent credit card account that has been sold to a collection agency, doing so does not have a huge impact on your credit score because the fact you were delinquent to begin with remains on your credit report for seven years. Additionally, credit cards are normally closed before being sent to collection agencies so your score already suffered from the card's closure and when you settle the balance owed you are settling the debt as opposed to closing the account.