It’s a common question; unfortunately, the answer is yes. However, how much of an impact canceling a credit card has depends on your credit history and what other accounts you have open.
Read more: Best credit cards to build credit
Closing a credit card can hurt your credit in three ways:
Your credit utilization is the percentage of your total available credit that you use. For example, if you have a credit limit of $1,500 and a $750 balance, your credit utilization ratio is 50% — you’re using half of your available credit.
If you use a large percentage of your available amount of credit, creditors worry you may take on too much debt, which can lower your score.
When you close a credit card, you can no longer access that credit limit, and your credit utilization increases. As a result, your credit score will likely decrease.
Creditors like to see that you can manage various types of credit, such as credit cards, installment loans, and mortgage debt — this is your credit mix.
If you only have one credit card and close it to avoid the temptation of spending beyond your means, you’ll close the only revolving credit account on your credit limit, damaging your score.
If you’re worried about overspending, consider keeping a card open solely for automated monthly payments. You can keep it out of sight, but the automated payments on your regular spending (utilities, streaming services, other subscriptions) will keep your account and credit mix active. Here are some examples of cash rewards cards that could be useful for automating monthly payments:
Read our full review of the Blue Cash Everyday card
Read our full review of the Freedom Unlimited card
Read our full review of the Savor Cash Rewards card
If the card you want to close is one of your oldest accounts, closing it will significantly impact your credit. Closing the account will reduce the average age of your accounts, and your score could decrease.
Alternatively, you may ask your issuer for a product change rather than opening a new credit card if your oldest credit card no longer suits your needs. For example, you may have opened the Capital One QuicksilverOne Cash Rewards Credit Card while building credit. But now you have an excellent credit score and would prefer a cash-back card without the $39 annual fee.
Instead of closing the card outright, call and ask whether you qualify to upgrade to the regular Capital One Quicksilver Cash Rewards Credit Card with no annual fee. Or even a travel rewards card that may offer more value for its cost, like the Capital One Venture Rewards Credit Card with a $95 annual fee. That way, you can keep your existing account but still get your preferred card.
Read more: How to check your credit score for free
Keeping a credit card can make sense in the following scenarios:
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It’s your only credit card account: Credit mix is a key factor in determining your credit score. Your credit score can increase with a good mix of credit products, such as credit cards and loans. If you only have one credit card account and you close it, your score could go down.
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It’s your oldest credit card account: Your credit history length also affects your credit score. The longer your credit accounts have been open, the better. Closing one of your oldest accounts could significantly impact your average length of credit history.
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You have a high credit limit: Closing a credit card with a high credit limit could increase your credit utilization, which could impact your credit score.
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You can switch to a different credit card product: In some situations, you don’t have to close your account to switch to another credit card product. This can keep your account active while letting you choose a card that’s better for you.
Closing a credit card can make sense in the following scenarios:
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You have a card for users with bad credit: Cards for people with no credit history or poor credit often have very high rates and monthly or annual fees. As your credit improves and you can qualify for cards with better terms, you can save money by closing the old cards.
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You have a joint card, and your relationship ends: Joint credit cards are typically used by married couples, and you’re responsible for any charges your partner makes. If you separate or divorce, you’re still responsible for charges to the account; the only way to end your obligation is to close the account.
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You are trying to limit credit card debt: For some people, credit cards make it too easy to rack up debt. Switching to only using cash or debit can help them control their spending, and canceling the card can help them resist the temptation to use it.
Closing a card can have a negative impact on your credit, but your score can recover if you follow other good credit habits. To improve and maintain your credit score, make all your required payments on time, limit new credit applications, and pay down existing balances.
Read more: Benefits of a good credit score
If you don’t think it’s worth keeping a credit card, consider asking your credit card company for a retention offer. Telling a customer service representative that you’re thinking about canceling your account can typically start the conversation.
Switching to a different credit card product keeps your current card account active and gives you a more favorable card. For example, you could switch to a no-annual-fee credit card to avoid an annual cost. However, being able to downgrade or change credit card products depends on your card and card issuer.
Contact your credit card issuer by phone or chat to close your credit card account. Here are a few actions to take before closing your credit card:
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Move recurring payments: You don’t want to miss any bill or subscription payments, so moving them to another card or bank account is essential.
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Pay off any remaining balance: Canceling a credit card doesn’t cancel any attached debt. Pay off your credit card balance to avoid late fees, high interest rate charges, and your credit score taking a hit because of a negative payment history.
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Use or transfer rewards: Closing a credit card can forfeit any remaining rewards, so it’s best to use or transfer them first.
Read more: What is a good credit score?
Unless there’s a specific reason to close an account, such as getting rid of a high annual fee, it’s typically better to hang on to credit cards, even if you don’t use them much. Keeping your credit cards active by using them occasionally on small purchases can help build your credit history by increasing the overall age of your credit accounts.
Closing a credit card can hurt your credit score if it reduces your credit mix, lowers the average age of your credit accounts, or increases your credit utilization. To avoid further impact on your credit, stop all recurring payments and pay off your balance in full before contacting your lender to close your account.
Closed credit card accounts in good standing typically stay on your report for up to 10 years, while closed accounts with negative information usually remain on your report for up to seven years. Both types of accounts stop affecting your credit history after they fall off your credit file.
If your cards have low or no annual fees, consider keeping them open by occasionally using them for small purchases. Active credit card accounts can help improve your credit score by lowering your overall credit utilization and increasing the length of your credit history.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to the Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
