Why Closing A Credit Card Hurts Your Credit Score

Ah, the perfect credit score. We all dream of it, and a few attain it, but the truth is you don’t really need a perfect credit score to get the best interest rates on loans. A good credit score is enough for most people’s needs, but that may be tricky to obtain and hard to come by, especially when you get misleading information about what goes into a credit score. And while nobody is sure of the formula for every individual for every reporting agency, experts have gotten really good at determining what hurts your score.

What Hurts Your Credit Score?

  • Bankruptcy, defaulted loans, repossessions, foreclosures
  • High debt to available credit ratio
  • Not enough credit
  • Short credit history
  • a few other minor things like “hard credit pulls” (lenders looking up your score)

Bankruptcy, defaulted loans, repossessions and foreclosures are usually a choice nobody wishes to make and are usually the result of some seriously troubling life circumstances that nobody anticipates – death, divorce, illness, job loss, etc. While we aren’t going to touch on those issues here other than a mention, I do want to say there’s hope after these situations. More on that later!

High debt to available to credit ratio is why you never want to close a credit card. I know you’re thinking, “This makes no sense! I have five credit cards and paid one off; if I close it, it will show I am responsible!” Logic would say so, but that’s not how credit scores work. Debt to credit ratios are considered “Good” when they are less than thirty percent – meaning, you are using less than thirty percent of the credit you have available to you. When you close a credit card, you are reducing the amount of credit you have available to you, sometimes by tens of thousands of dollars, and your score can theoretically take a major hit (like a hundred points or more!) Ouch. The best thing to do is leave that card open and alone. You can cut it up if you want to, just don’t call and cancel it. It will show as available credit, but you’ll owe nothing, which is only a boon to your credit.

Various types of credit help improve your score. For instance – if you have a mortgage, an auto loan, a credit card, and a school loan, and all of those are in good standing, that shows you are responsible in various areas and have a vast array of vested interests in our society and aren’t likely to just fall off the grid. If a loan company looks you up and sees you just have a credit card, it looks a little more concerning to them. Obviously, these things take time, and it’s probably not a great idea to acquire all these in the same year (for your credit or for your sanity). In general, though, variety is good.

Short credit history is another thing that can be affected when you cancel a credit card, so don’t do it. Credit history is the average of all the credit you have. If you’ve had a credit card for ten years, an auto loan for two, and a student loan for five, your credit history average is going to be 5.6 years, which falls into the average category for most reporting agencies. If you cancel your credit card, your history would quickly drop to 3.5 years, which is a category that often “needs work” and can hurt your overall credit score. Again, just leave your paid-off credit card open and don’t use it.

When you apply for a loan, the issuing bank or company will look up your credit score. One or two won’t do much to your score. But if you have twenty in a month, it could drop your score quite a bit, because it seems like you’re desperately trying to get loans anywhere you can. So think carefully about what you really need and when you need it, and also consider what you will be likely to be approved for.

Credit scores are a bit of a mystery, but there is an art to them. With time, you will learn what affects your credit and therefore affects your potential to obtain loans.

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View the newest homes listed in Dubois County in the last 10 days:

Situated on a .28 acre lot in Holland is this approximately 1878 sq. ft. home. Features include 4 bedrooms, 1 full bathroom. a partial unfinished basement with a walk-up entrance, a detached garage, and a 36X48X14 high pole barn type block building. The kitchen offers an abundance of oak cabinets, an eat-at bar and a range and refrigerator. Just off of the kitchen is a large dining room and adjacent to the dining area is the oversized living room. There is also an extra room that could be made into the drop zone area or a main floor laundry room. There are 2 bedrooms on the main floor as well as 2 additional bedrooms on the upper level. The unfinished basement is great for storage. The roof on the home and the large building are approximately 3 years old. $210,000 Active

208 E Mary Street Holland, Indiana

4 Beds 1 Baths 1,878 SqFt 0.28 Acres

Listing courtesy of Gary Schnell from SELL4FREE-WELSH REALTY CORPORATION.

Nestled in a quiet cul-de-sac on Jasper’s desirable west side, this beautifully maintained 3-bedroom, 3-bath home offers comfort, convenience, and style—all in one perfect package. From the moment you arrive, the fresh landscaping and inviting curb appeal draw you in. Step onto the welcoming covered front porch, and enter into a spacious foyer that opens up to a bright 17' x 17' living room with cathedral ceilings, creating a warm and open feel.  The eat-in kitchen, updated in June 2022, features stunning Quartz countertops and backsplash, a new sink and disposal, and upgraded appliances installed in August 2023—perfect for any culinary enthusiast.  A split floor plan offers added privacy, with the spacious owner's suite boasting a large walk-in closet and a newly installed cultured marble walk-in shower with glass doors (June 2024). Two additional bedrooms and a full bath are located on the opposite side of the home. Head downstairs to a fully finished basement that’s an entertainer’s dream. Enjoy a custom bar, expansive rec room ideal for movie nights or ping pong, a full bath, a dedicated office area, a bonus room currently used as a fourth bedroom, and a generous storage room with built-in shelving. Outdoor living is just as impressive with a maintenance-free deck and screened porch, offering the perfect spot to relax and unwind. A 2-car attached garage and spacious driveway provide ample parking. Additional Features & Updates: Roof & tankless on-demand water heater – June 2020 Kitchen appliances & washer/dryer – August 2023 Furnace with Ecobee Premium SmartSensor thermostat – February 2024 New sump pump – April 2025 Jambini magnetic cabinet locks – June 2020 This move-in-ready home has it all—modern updates, versatile living spaces, and a peaceful yet convenient location. $329,700 Pending

391 Gardenia Lane Jasper, Indiana

3 Beds 3 Baths 2,977 SqFt 0.25 Acres

Listing courtesy of Brenda Welsh from SELL4FREE-WELSH REALTY CORPORATION.

Situated on a .47 acre corner lot is this "move in ready" 1258 sq. ft. ranch style home featuring an attractive stone and vinyl exterior. Features include an open concept floor plan with a neutral decor throughout including laminate and ceramic tile floors and carpeting in all bedrooms. This home offers 3 bedrooms and 2 full bathrooms with wider doorways. The extra large 25X27 attached garage is heated and cooled and includes a work bench area and cabinets. There is a rear covered porch and an additional patio with a pergola, and a 10X12 storage building. The driveway offers a back-out space for extra parking and ease of exiting the driveway as well as a new RV parking pad. Also included is an underground invisible pet fence.  Additional updates include all LED lighting and new carpeting in all 3 bedrooms as well as a new range in the kitchen. All kithcen appliances as well as the washer and dryer are included along with custom window shades. $262,900 Pending

4020 N Portersville Road Jasper, Indiana

3 Beds 2 Baths 1,258 SqFt 0.47 Acres

Listing courtesy of Gary Schnell from SELL4FREE-WELSH REALTY CORPORATION.