Closing a credit card that you’re not using to eliminate the annual fee is a sound strategy, but there are some considerations you’ll need to be aware of. Simply “shutting it down” without taking some preliminary steps may not be in your best interests. It could lower your credit score, affect your credit history, or cost you additional fees if you’re not careful. 

If you used a debt payoff calculator and the card you want to get rid of is the next debt in line, closing it is not your only option. In some cases, keeping it open, paying the annual fee, and using it occasionally for small purchases could be more beneficial. One of the primary reasons for this is the negative effect closing the card will have on your credit score. We discuss that and more to keep in mind before cutting up the card below.

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   Never Close Your Oldest Account

Age matters when it comes to calculating your credit score. FICO and other credit scoring agencies use your oldest account as a marker for the age of your overall credit history. If the card you are thinking about closing is your oldest account, don’t do it. Pay off the balance and pay your annual fees. It’s worth it for the extra points on your credit score. 

2. Available Credit is a Factor in Credit Scoring

Another variable used when calculating your credit score is the amounts owed. This number, shown as a percentage of available credit, accounts for 30% of your total score. If you close a credit card, it lowers the available credit amount, thus increasing the percentage of what you owe relative to available credit, even though the actual amount of that debt does not go up.   

3. Pay Your Balance in Full

If you’re still determined to close your credit card after reading the previous two points, make sure your balance is paid in full. Leaving a balance on a closed card will subject you to fees and potential late payments for what you might consider insignificant amounts. Think of this as cleaning out all your belongings before you sell the house.  

4. Check for Subscriptions Attached to the Card

It is a common mistake for consumers to close their credit cards and forget that autopay subscriptions are attached to them. The monthly subscriptions are easy to remember because you see them frequently. Annual subscriptions, like antivirus software, for instance, can easily be overlooked. Check one year’s worth of past transactions to avoid this.  

5. Redeem Your Rewards Points First

The final step to take before closing a credit card is to make sure you redeem all outstanding rewards points. You’ll lose them once the card is closed, so don’t let them go to waste. This is particularly true with travel points you can use on airfare, hotels, and rental cars. You might want to take your next trip before you cancel that card. Review your points and see if it’s worth waiting so you can use them before you lose them. 

The Bottom Line: Closing a Credit Card Might Not Be Worth It

It makes sense to want to close out older credit cards and consolidate all your debt in one place, but it may not be worth the fallout. Shortening the age of your credit history, increasing your amounts owed percentage, and losing rewards points are some of the obvious reasons why it’s not a good idea. Consider these carefully before making your decision.

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