Does Closing Credit Cards Improve Credit Score?

Closing credit card accounts typically does not improve your credit score. In fact, it would more likely hurt your credit score because your credit history with the card remains the same but canceling the card lowers your credit utilization ratio. History and credit use are significant components in your individual FICO credit score.

Closing Cards

Typically, consumers consider closing credit card accounts when they have paid off balances and want to avoid the temptation to overspend and build up debt again. Some credit card providers charge annual or periodic maintenance fees, which can also motivate cardholders to cancel accounts. An alternative to closing a credit card account is to put your cards in a safe deposit box or cut them up to avoid using them, while also preserving the history.

History and Utilization

Your credit card history and length of credit history, along with credit utilization, make up a significant portion of your FICO credit score. FICO was developed by the Fair Isaac Corporation. The FICO scoring model is used by Equifax, Experian and TransUnion--the three major reporting bureaus--as the basis of their scores. On its website, MyFICO, Fair Isaac breaks down major scoring factors into five key areas. Payment history and length of credit make up half the score. Credit utilization, or amounts owed, comprises another 30 percent. New accounts and types of credit are 10 percent each.

History Factors

The credit history section, which accounts for 35 percent of the FICO score, includes accounts on which you have consistently and responsibly made payments. It also includes any late payment or past due notices reported by creditors. When you cancel a credit card, your history with that card stays on your credit report. Essentially, your history with the card has the same influence as before the account is closed. You are not eliminating negative marks by closing the account.

Credit Utilization

Credit utilization is where your credit score is typically negatively affected when you close a credit card account. Credit utilization is the percentage of your available credit currently in use on each given card and in total. Assume that you have a card limit of $5,000 with a zero balance. If you close that account, your available credit drops by $5,000, but your credit in use stays the same. This lowers your utilization, which can knock several points off your score.