How opening and closing credit cards impact your credit score

By Anik KhanUpdated May 6, 2017


I’ll assume you know what a credit score is and how to calculate it. If not, read the deep dive: What Is a Credit Score and How Is It Calculated.

There are several ways credit cards impact your score. Let’s look at it using the key dimensions used to calculated the FICO Score:

  1. Payment History
    When you pay your credit card bills on time, your payment history improves and your credit score will improve. Of course, if you don’t, the opposite will happen.
  2. Credit Utilization
    In general, the more credit cards you have or the higher your limits are, the lower your credit card utilization will be. This is a significant benefit of having multiple credit cards, because your utilization is calculated across your lines of credit. For example, if you have one credit card with a $10,000 limit and you spend roughly $5,000 every month, you’re utilization will be 50% even if you pay off the balance in full every month. However, if you were to get another credit card that had a $10,000 limit, your utilization would be 25% ($5,000/$20,000). In this scenario, getting the additional credit card would almost certainly boost your credit score by a meaningful amount.
  3. Length of Credit History
    When you don’t have any credit, then getting a credit card will start your credit history. However, if you already have some credit history, then a new credit card will bring down the average age of your accounts, impacting your credit score negatively. However, this impact is generally very small. Closing a credit card can also negatively impact your score, especially if it is your oldest account.
  4. Credit Mix
    Opening your first credit card will improve your credit mix, but subsequent cards will have limited impact.
  5. Credit Inquiries
    Apply for new credit cards will negatively impact your score, but this is generally small and temporary.

Impact of Opening A Credit Card

DimensionImpactMagnitude
Payment HistoryNoneNone
Credit UtilizationPositiveMedium
Length of Credit HistoryPositiveLow
Credit MixNone or PositiveNone – Low
Credit InquiriesNegativeLow
OverallGenerally PositiveLow to Medium

Impact of Closing A Credit Card

DimensionImpactMagnitude
Payment HistoryNoneNone
Credit UtilizationNegativeMedium
Length of Credit HistoryNegativeLow
Credit MixNone or NegativeNone – Low
Credit InquiriesNoneNone
OverallGenerally NegativeLow to Medium

Further Considerations

Of course, the impact on your credit score shouldn’t be the only factor you consider when opening or closing credit cards. If you’re not using a credit card that has a $200 annual fee, then the marginal and temporary negative impact of closing the card is likely far outweighed by the real cost of paying $200 every year.

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