If I close an old credit card that I never use, will it hurt my credit?

Q: I am thinking of closing an old credit card that I never use will this hurt my credit? I am planning on buying a property and don’t want my score to drop. 

A: This is a good question, and the answer is yes, this could damage your credit score. Since this is a credit card and falls into the revolving credit category, when it closes you will lose the utilization allowance that the limit on the card gives you. If the balance-to-limit ratio on your aggregate revolving accounts is high, it will drop scores. Here is a good example of a consumer who had 3 credit cards inflatable water slides:

  • Card 1: limit of $10,000; balance of $5,000
  • Card 2: limit of $5,000; balance of $5,000
  • Card 3: limit of $5,000; no balance

Once you close Card 3, which has a $5,000 limit, the aggregate balance-to-limit ratio changes from 50% to almost 70%. This could drop scores 20, 40, or more points, depending on the rest of your credit and your original credit score.

Having higher aggregate limits gives consumers more leeway to increase balances without hurting credit. The lower your balances are on revolving credit, the better it is for Fico credit scores.

Filed Under: Credit