National nonprofit credit counseling agency Take Charge America helps consumers understand the dos and don’ts of closing a credit card

A credit card can be closed at any time, right? The answer may be more surprising than most people think. While there are certainly occasions where it’s appropriate — and wise — to close out a credit card, there are other situations when discontinuing an account can damage one’s financial outlook.

"It’s important to understand how closing a credit card can affect current and future credit,” said Amy Robbins, associate director of operations with Take Charge America, a nonprofit credit counseling and debt management agency. “For instance, if you have a large purchase on the horizon — such as a house or vehicle — closing a credit card could actually impact your ability to qualify for the loan.”

Robbins outlines the dos and don’ts every credit card holder should know before closing a credit card:

Do close a credit card if:

  • Overspending is an issue: If it’s difficult to spend responsibly, it's wise to terminate the account.
  • Annual fees are exorbitant: If fees increase or become unmanageable, it makes sense to close the account. If you still have a balance, consider transferring it to a lower-interest card first.
  • A credit card was compromised: If fraud occurred or your identity was stolen, you may need to close an account.
  • A joint account needs to be separated: If the sharing of an account needs to be discontinued, such as during a divorce, it’s best to close it.
  • If a balance was transferred to a lower-interest card: To reduce interest rates, a transfer to a card with a low introductory APR may be beneficial.

Don’t close a credit card if:

  • It hasn’t been used in a while: Closing a card reduces your available credit, which can increase your credit utilization ratio and lower your credit score. This can impact your ability to qualify for other loans.
  • It's been open for a short time: Using more of your available credit and having a shorter credit history can lower a credit score.
  • A balance remains: Trying to cancel with an outstanding balance often leads to additional fees and can lower a credit score.
  • A house or car purchase is under consideration: Closing a credit card before applying for a loan can potentially lower a borrower’s credit score and increase interest rates.

Take Charge America provides free and confidential credit counseling if you have questions about credit use and budgeting.

About Take Charge America, Inc.

Founded in 1987, Take Charge America, Inc. is a nonprofit agency offering financial education and counseling services including credit counseling, debt management, housing counseling and bankruptcy counseling. It has helped more than 2 million consumers nationwide manage their personal finances and debts. To learn more, visit takechargeamerica.org or call (888) 822-9193.

Katie Brashear Head of Publicity Aker Ink (480) 330-0872 katie.brashear@akerink.com