Will closing your credit card hurt your finances?

It’s a common question in personal finance circles: If you’re no longer using a credit card, should you go ahead and cancel it? The answer isn’t as simple as “yes” or “no”—because the effects ripple across your credit score, borrowing ability, financial habits, and future planning in ways that most people overlook.

At a glance, closing a credit card might seem like the responsible thing to do. After all, isn’t keeping fewer cards open better for control and discipline? In some cases, yes—but in others, closing a card can quietly hurt your financial position, even if your intentions are solid. Before you call up your issuer and request account closure, here’s what to know about how this decision fits into your broader financial picture.

Let’s begin with the most immediate impact: your credit score. Your credit score—whether through FICO, VantageScore, or other models—is based on several core factors. One of the most influential is your credit utilization ratio, which measures how much of your available credit you're using.

For example, say you have two credit cards, each with a S$5,000 limit, and your total balance across both is S$2,000. Your utilization ratio is 20% (S$2,000 out of S$10,000). But if you close one card, your total available credit drops to S$5,000—meaning your utilization jumps to 40%, even though your actual spending hasn’t changed.

That increase in utilization can reduce your credit score—particularly if you’re planning to apply for a loan, refinance, or open new credit lines in the near future. But that’s not the only factor. Closing a credit card can also affect the length of your credit history, especially if it’s an older card. While closed accounts can remain on your credit report for years, scoring models may weigh active accounts more heavily over time.

In short, the act of closing a card may lower your credit score by reducing your available credit, increasing your utilization ratio, and potentially shortening your average account age.

Still, there are valid reasons you may want to close a credit card. Maybe it charges a high annual fee that no longer makes sense given your lifestyle or travel patterns. Maybe you’re simplifying your finances to focus on just one or two well-managed cards. Or maybe the card is linked to memories, habits, or a relationship you no longer want to associate with.

All of those are emotionally rational reasons—and financial decisions aren’t always just about numbers. But it’s worth asking: Is closing the card the only way to achieve the clarity you’re after?

If the card is rarely used but has no annual fee, it might be better to keep it open, use it occasionally (say, for a streaming service or grocery bill), and pay it off monthly. This keeps the account active, preserves your credit history and available credit, and doesn’t complicate your score.

On the other hand, if the card carries an expensive fee and you’re no longer getting value from it—say, a travel card you signed up for during frequent flyer years but haven’t touched since having kids—then closing it may be a strategic choice. The key is intention. Don’t close the card just to reduce clutter or limit temptation. Close it because you’ve evaluated the long-term trade-offs, and it no longer serves your current or future financial goals.

Here’s a simple decision framework that aligns with long-term financial planning:

1. Annual Fee – Does the card charge a fee that no longer delivers value? If yes, consider downgrading to a no-fee version first, especially from the same issuer.
2. Utilization Ratio – Will closing the card significantly reduce your total available credit? Check your existing balances before taking action.
3. Credit Age – Is this one of your oldest accounts? If so, consider keeping it open even if it’s rarely used.
4. Behavioral Triggers – Is the card causing overspending or psychological stress? That may override technical optimization.
5. Future Plans – Are you planning to apply for a mortgage, car loan, or business credit line in the next 6–12 months? If so, avoid closing accounts unless absolutely necessary.

This isn’t a formula, but it is a filter. Use it to understand what you’re optimizing for: simplicity, savings, or score stability.

Some people ask: If I have multiple cards I never use, can I close them all at once?

From a financial health perspective, spacing out closures is generally better. Closing multiple cards in a short window can sharply reduce your total available credit and signal instability to lenders. Worse, it can exaggerate utilization ratio changes and shorten your credit history all at once.

If you’re determined to streamline, consider a phased approach: one closure every 6–12 months, with monitoring in between to assess credit impact. You can also consolidate spending onto one or two primary cards while keeping others open in the background—used occasionally for small auto-pay bills just to maintain activity. A well-managed portfolio doesn’t mean fewer cards. It means intentional cards.

One hidden downside of closing a card is losing the rewards balance tied to that account. If you’ve accumulated miles, cashback, or points, you could forfeit them entirely upon closure—especially with issuer-specific cards like airline co-brands or store loyalty cards. Before canceling, redeem what you can. If the rewards aren’t easily transferable or usable, that’s another reason to consider downgrading instead of closing.

Some issuers will let you transfer your line of credit or downgrade to a no-fee card within the same product family—preserving your account age, available credit, and rewards. If you’re unsure, call the issuer’s retention team. In some cases, they may offer an incentive to keep the card open, such as a fee waiver or downgrade option you didn’t know existed.

If you’re weighing the decision today, ask:

• Does this card still align with my current spending and planning goals?
• Am I using this account to build credit—or just avoiding it?
• Would closing this affect my credit score enough to impact future borrowing needs?
• Am I reacting emotionally (to clutter or temptation)—or planning strategically?

You don’t need to make the “perfect” choice today. But you do want to make a clear one—based on your timeline, not someone else’s rules.

There’s no shame in keeping a card open even if you barely use it. And there’s no badge of honor in canceling every “extra” card to prove you’re disciplined. Your credit history is a long-term tool—one that works best when it’s nurtured slowly, with deliberate decisions.

Closing a card isn’t about financial virtue. It’s about alignment. Does this account still support your budget, goals, and borrowing strategy? Or is it silently working against them?

Treat your credit profile like you would a financial portfolio: regularly reviewed, but rarely overreacted to. Because in personal finance, slow is still strategic—and thoughtful beats tidy every time.