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Let’s say you’ve got a credit card with a $15,000 limit that you haven’t used in years. You’re tempted to shut it down to simplify your wallet — and hey, no harm done, right?
Not so fast.
As someone who’s helped hundreds of people build up their credit scores, I can tell you that closing a high-limit account can have a bigger impact than you think. Closing cards doesn’t always wreck your credit score, but it can lower it quite a bit depending on your situation.
Here’s exactly what happens when you close a credit card with a high limit (and how to do it smartly if you’re ready to cut ties).
Your credit utilization ratio can spike
One of the biggest ways your credit score is calculated is through something called your “credit utilization ratio.” That’s a fancy way of saying: how much of your available credit you’re using.
Let’s say you have $20,000 in total available credit across three cards, and you usually carry a $4,000 balance. That’s about 20% utilization — not bad.
But if one of those cards has a $10,000 limit and you close it, your available credit drops to $10,000. Now all of a sudden you’re using 40% of your available credit, and that’s a red flag to lenders.
Most experts recommend keeping your utilization under 30%. Personally, I tell people to keep it under 10% if they can, or even less if you want the best possible score. Closing a high-limit card can push you over that line without you even spending another dime.
You could lose valuable credit history
Another chunk of your credit score (about 15%, according to FICO) is based on the length of your credit history. That includes how long your oldest account has been open and the average age of all your accounts.
If the card you’re closing is one of your oldest, that could shrink your average account age. And even though closed accounts can stay on your credit report for a while, they eventually fall off, and your score could take a hit down the line.
This is why many people keep their oldest card open, even if they barely use it.
Personally, I’ve kept a no-annual-fee card from my early 20s just to keep my credit history long and strong. I use it every couple months for a small transaction just to keep it active.
Things to try before canceling
If you’re on the fence about closing a credit card — especially one with a high limit — there are a few smart moves to consider first. These options can help you keep the benefits of your account without hurting your credit score.
Downgrade to a no-annual-fee version
If the goal is to ditch an annual fee, ask about a downgrade option. Many issuers have no-annual-fee cards in the same family that let you keep your credit history and rewards (in some form) without the cost.
Browse our favorite no-annual fee cards here from top issuers.
Move your credit limit to another card
If you have two cards from the same issuer, there’s a good chance you can transfer part (or all) of a credit line from one card to another. You can call customer service — but some banks even let you do this inside the app, like Chase.
This helps keep most of your total available credit, which can protect your credit utilization ratio.
Pause, don’t close
There’s no rush to close old cards (unless they have big annual fees and you never use them). Even if you stop using a card regularly, keeping it open with a small recurring charge (like Netflix or a monthly subscription) can keep the account active.
A quick conversation with customer service can save you points on your credit score. If your goal is to save money, simplify, or swap to a better-fit card, you’ve got options.
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Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.Joel O’Leary has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
