by Sid Kirchheimer, AARP Bulletin, October 29, 2010
Q. I want to close two credit cards that recently imposed an annual fee. Will this hurt my credit score?
A. Maybe, maybe not. "It depends on what else is on your credit report at the moment your next score is calculated," says Craig Watts of FICO, the company whose credit scores are most widely used by lenders in determining creditworthiness.
Although many factors arise in calculating a score, the primary consideration when closing existing accounts is the impact on your "credit utilization" — the ratio of existing credit card balances to their cumulative credit limits.
Let's say you have three credit cards, each with a $5,000 limit. If all three accounts have a zero balance at the moment you close two of them, it likely won't lower your score. "Your utilization is zero because you have no balances," explains Watts.
But say you owe $3,000 on one card and cancel the two that have zero balances. Your utilization suddenly jumps from 20 percent of the old $15,000 cumulative limit to 60 percent of the new $5,000 limit. This could ding your score. Advice: Pay off that $3,000 balance before you pull the plug on the other plastic.
One other common question in closing long-held card accounts is whether it will affect your credit history, which accounts for 15 percent of a FICO score. It's "a myth that as soon as you close a card, it becomes invisible to scoring models and you've lost 30 years of accumulated history," says Watts. "A closed account remains on your credit history, probably for another decade."
Sid Kirchheimer writes about consumer and health issues.
Please leave your comment below.
You must be logged in to leave a comment.
Members save 20% on purchases or $20 when they spend $79.99 or more.
Exclusive program for members from The Hartford.
Get tips and resources to protect yourself from fraud and see the latest scam alerts in your state.
AARP members receive exclusive member benefits & affect social change.
You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.
Your email address is now confirmed.
Manage your email preferences and tell us which topics interest you so that we can prioritize the information you receive.
Explore all that AARP has to offer.
In the next 24 hours, you will receive an email to confirm your subscription to receive emails
related to AARP volunteering. Once you confirm that subscription, you will regularly
receive communications related to AARP volunteering. In the meantime, please feel free
to search for ways to make a difference in your community at