Blogging for Change

Will closing this account hurt my credit score?

Ask the Experts: Should I wait before I close this credit card?

I recently completed paying off my credit card debts (thanks to MMI!). I currently have 2 general credit cards - one is a card that I used to help rebuild my credit (it has an annual fee which they charge as $3/month and a high interest rate); the other one is a no-annual fee card with a decent interest rate.

My question is this - will it ding my credit to close the high interest card? If so, how long should I hang onto it and pay that $3/month fee until I can get rid of it? Thanks! -Darlene

Hi Darlene,

I’m glad to hear that you’ve completed your Debt Management Plan! That’s great! Congratulations! That’s no small feat.

Regarding your question, as we always tell consumers, the exact formula behind credit scores is proprietary, so there’s no way to be 100 percent certain how any action you take is going to impact your score. That said, we do know what information is factored into your score and, in general, what actions will have positive or negative consequences.

Length of credit history accounts for 15 percent of your score calculation in the FICO model. Having accounts that have been open for a long time is (generally) better for your score than having accounts that have been open only a short time. So when you close an account that you’ve had for a while, your score often (but not always) goes down.

Will it hurt your score to close the account with an annual fee and high APR? Probably. How much it hurts (or doesn’t) may be contingent on how long it’s been open; which is also to say that keeping it for a while longer only to ultimately cancel the card won’t necessarily lessen the blow when you do finally close the account.

My suggestion is to speak to the credit card company first and see if you can’t negotiate better terms for the card. If you’ve had it for a while and have used it well and wisely, they may be willing to help you out. If they aren’t willing or able to change the terms, shop around. It’s generally considered to be best to have 2 to 3 credit cards, so find another with favorable terms (before you close the bad card and take the potential credit hit).

Building strong credit takes time, but by clearing away your debt and making smart, informed decisions, it sounds like you’re well on your way! Congratulations again, and good luck!