Will cancelling a credit card affect my credit score?
As credit card accounts are included on your credit file, cancelling one could have an impact on your credit score.
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
Your credit score is based on the details listed on your credit file, which includes information about active and closed accounts. This means any change to your credit file, including cancelling a card, could affect your credit score.
But because this is just one part of your credit file, the impact it has (or doesn't have) on your credit score also depends on other details listed on your file. So before you go ahead and cancel your credit card, let's take a look at three ways it could help or hurt your credit score.
Want a better way to check your credit score?
Banks know your credit score, so why shouldn't you? The Finder app updates your score automatically each month and lets you know if it changes. Pop in your phone number below to get your download link.
3 ways cancelling a credit card could improve your credit score
In general, your credit score is improved when you reduce some of the potential risks for lenders. So, if cancelling a credit card leads to any of the following changes, it could have a positive impact on your score:
- If it gets rid of a high credit limit. Having access to a lot of credit can hurt your credit score because it increases the risk that any new lenders would face if you applied for another card or loan. By cancelling your credit card, you'll reduce this risk, which could also improve your credit score.
- If it shows you've settled outstanding payments. Before you can close a credit card account, you'll need to make sure the balance is cleared. So, if you have previously had late payments or defaults recorded on this account, closing it could show you're taking control of your debts.
- If it helps you make other payments on time. Once you've closed your credit card account, you'll have one less bill to think about each month. If this makes it easier to deal with other accounts, it could improve your payment history and your credit score.
3 ways cancelling a credit card could hurt your credit score
If your credit history also shows you've recently made some late payments or have defaulted on accounts, cancelling your card might hurt your score or leave it unchanged.
- If you have a lot of recent applications. Applying for a lot of credit cards (or other credit accounts) over a few months increases the level of risk for your existing and potential lenders. It may suggest that you're struggling with debt or that you're jumping from one credit card to another in order to take advantage of introductory offers. While there's not technically anything wrong with that, credit card companies do frown on this type of behaviour.
- If it was your only credit account. Cancelling a credit card when you don't have any other loans or credit accounts limits the amount of information you'll have on your credit file. That means your credit score could drop or remain unchanged until you apply for a new card.
- If making payments on your other accounts is still a challenge. While cancelling a credit card could be a step in the right direction, you may still find that it's difficult to make payments on your other accounts. This could lead to more late payments or defaults that lower your credit score. If you need help dealing with your credit accounts, you can get free support by calling Financial Counselling Australia on 1800 007 007 between 9:30am and 4:30pm Monday to Friday (AEST).
What about my debt-to-credit ratio?
Debt-to-credit ratios are an important factor for credit scores in the US, showing how much debt someone is carrying versus the amount of credit they have access to through cards and other accounts. Cancelling a card could affect this ratio by reducing the amount of available credit.
As there is a lot of information online about US credit ratings, this term often comes up when you're searching for details on Australian credit scores. However, debt-to-credit ratios are not a factor in Australia because our credit files only show the total amount of credit available. This means lenders in Australia typically to look at the amount of credit you have access to in comparison to your income.
Does cancelling a credit card always have an impact on credit scores?
Getting rid of a credit card doesn't always have an impact on your credit score. For example, if you've just got a new credit card and then closed the old one (or vice versa), it may not change your overall score.
It's also important to keep in mind that your credit score can fluctuate as more details are added to your credit file. So even if cancelling a credit card does affect your credit score in the short term, how you manage your accounts over time will play a greater role when it comes to getting approved for the cards and loans you want in the future.
Compare the latest credit card offers
Dig in deeper with our credit score guides
Find out what a credit score is and what it can do for you.Read more…
This guide explains credit score ranges from weak through to an excellent score. We cover the differences from Equifax, Experian and Illion.Read more…
Credit reporting bureaus issue credit reports and scores to consumers and lenders. Discover how they work in this guide.Read more…
*The credit card offers on this page are chosen from a range of credit cards available to us and are not representative of all the products available in the market. The use of the terms "best" and "top" are not product ratings and are subject to our disclaimer. There is no perfect order or perfect ranking system for the products we list on our Site, so we provide you with the functionality to self-select, re-order and compare products. The initial display order is influenced by a range of factors including conversion rates, product costs and commercial arrangements, so please don't interpret the listing order as an endorsement or recommendation from us. We're happy to provide you with the tools you need to make better decisions, but we'd like you to make your own decisions and compare and assess products based on your own preferences, circumstances and needs.
More guides on Finder
Finder’s RBA Cash Rate Survey: 60% of experts blame BNPL for drop in credit cards
Credit cards are being used less and experts say Buy Now Pay Later services such as Afterpay and Zip are to blame, according to new research from Finder. In this month's Finder RBA Cash Rate Survey™, 39 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy.
How to buy Robinhood stock from Australia
Robinhood is set to go public as soon as June. Here's what you need to do to buy in from Australia.
Citi Rewards Card – Bonus Points Offer
Earn flexible rewards points as you spend and enjoy a big 100,000 bonus points offer with the Citi Rewards Credit Card.
HSBC Platinum Credit Card
This card offers 0% interest on balance transfers for 36 months, a discounted $29 first year annual fee and platinum benefits including airport lounge passes and complimentary insurance covers.
Plastic profanities: The 8 credit card sins to avoid
Credit card misuse is rife in Australia, according to new research by Finder, Australia’s most visited comparison site.
Citi Rewards Card – Velocity Points Offer
Enjoy 100,000 bonus Velocity Points, a reduced first-year annual fee and points per $1 spent with the Citi Rewards credit card.
How to find out your credit score using GetCreditScore
Get a firmer grasp of your finances with this free tool.
Find out your credit score using Credit Simple
How to find out your credit score using this free tool.
How to read your credit score using Credit Savvy
Follow these tips to get a handle on your credit with this free tool.
How to get your credit score using ClearScore
How to get an accurate snapshot of your credit history with this free tool.
Ask an Expert