Does Closing a Credit Card Decrease Your Credit Score?

A FICO credit score contains five key variables: the amount of debt you owe, payment history, types of credit used, length of credit history and the amount of new credit applied for recently. The score ranges from 300 to 850. Closing a credit card can impact certain variables of the score and has the potential to decrease it.

Scores

Thirty percent of the score reflects the amount of debt you have. This percentage considers your credit utilization ratio as part of the calculation. According to FICO, this ratio measures how much available credit you currently have versus how much of that available credit you're using. The more credit you use, the higher the ratio. The less credit you use, the lower the ratio. A lower ratio means less of your available credit is being used and results in a higher FICO score.

Significance

An open credit card has a credit limit associated with it. This credit limit is factored into the available credit portion of your FICO score. When you close a credit card, you decrease the amount of available credit listed on your credit report. The reduction in available credit can lower your score. Your score is impacted even further if you still have a remaining balance on the closed card. This keeps the debt you owe at the same level but reduces the available credit. It will increase your credit utilization ratio and this will negatively impact your credit score.

Considerations

Closing a card can affect your credit score in another way as well. Fifteen percent of your score measures the average length of all of your credit accounts. The longer the history, the better it is for your score. Negative card accounts will report for up to seven years. Card issuers can report closed, positive accounts for up to 10 years but they're not required to. Creditors often purge their reporting rolls of closed credit card accounts. Once the card stops appearing on your credit report, it will reduce the length of your credit history and decrease your score, especially if the card you close is the oldest card that you have.

Alternative

Consider keeping the card open but not using it, especially if your goal is to increase or maintain your credit score. The open and unused credit line will work to keep your available credit high, which helps your FICO score. The card will also continue to contribute to the length of your credit history. There may be other reasons you have for closing the card. If your reason is to improve your credit score, however, FICO recommends against it.