Your Credit Score Could Drop 100 Points From This One Common Mistake

Most people know that missing payments hurts credit scores, but few realize that closing old credit cards can trigger a massive score drop overnight. Credit utilization ratio, which measures how much of your available credit you’re using, makes up 30% of your credit score calculation. When you close an old card, you lose that available credit instantly, potentially spiking your utilization from a healthy 10% to a dangerous 40% or higher.

The average American has 3.84 credit cards, and closing just one can reduce total available credit by thousands of dollars. Consider a person with three credit cards totaling $15,000 in available credit and $2,000 in debt. Their utilization sits at a respectable 13%. If they close a card with a $5,000 limit, their utilization jumps to 20%, which can drop their credit score by 50-100 points within a single reporting cycle.

Credit experts recommend keeping old cards open with small, automatic purchases like Netflix subscriptions to maintain the credit history and available credit that boost your score. The length of credit history accounts for 15% of your score, making older cards particularly valuable. Cards you’ve had for five or more years contribute significantly to your average account age, which lenders view favorably.

However, keeping cards open requires discipline. Annual fees on unused cards can cost hundreds of dollars yearly, negating any credit score benefits. Call your card company to request a product change to a no-fee version of the same card. Most major issuers offer basic versions without annual fees that preserve your credit history and available credit.

The timing of card closures also matters. Closing cards right before applying for a mortgage or auto loan can devastate your credit score when you need it most. Credit scores take three to six months to recover from utilization spikes, potentially costing thousands in higher interest rates.

Some financial advisors recommend closing cards with annual fees, but this strategy backfires for people with limited credit history. Young adults with only two or three cards should never close accounts, even with fees, until they establish more credit history. The temporary fee cost is minimal compared to the long-term damage from a reduced credit score.

Store credit cards pose particular risks because they typically have lower credit limits. Closing a department store card might only reduce available credit by $500-1,000, but the impact on utilization can still be significant for people with limited total credit. Before closing any card, calculate how the closure would affect your overall utilization ratio.

Credit monitoring services can help track score changes after closing cards, but prevention remains the best strategy. Set up automatic small purchases on old cards to keep them active, and monitor your credit report quarterly to ensure closed accounts don’t contain errors that could further damage your score.