Yes, closing a credit card could hurt your credit score

Published on 30th August, 2022 at 11:55 am

To build a healthy credit score, you need to use credit. But can closing a credit card have a negative impact on your credit score, too? If you’re considering it, read this first.

Reading time: 3 minutes

In this article you’ll learn:

• How to build a healthy credit score.
• How taking out a credit card in your name can contribute to your credit score.
• The impact of closing a credit card on your credit score.
• How Sanlam Credit Solutions can help you stay on top of your credit.

Less credit, fewer problems?

You could be considering closing your credit card for a variety of reasons, but there are some scenarios in which it would be better to hang on to it so that you can continue to improve and enjoy your credit score and the opportunities it can unlock for you.

“A credit card measures your credit utilisation, and because you manage your own use of credit with a credit card, it becomes a tool to measure risk – your risk,” explains Ayanda Ndimande, business development manager at Sanlam Retail Credit. Here, she discusses some of the instances in which closing your credit card may not be the best move for your credit score.

With Sanlam Credit Solutions, you can safely and easily check your credit score, credit history and recommendations – all on one dashboard. Explore it now.

Closing your oldest credit card

Considering that the length of your credit history contributes 15% towards your credit score calculation, according to credit bureau Experian, hanging onto your oldest credit card makes a difference.

Say you’ve had a credit card for 15 years, and then take out other credit agreements lasting two or three years. If you close your first card, you shorten your average credit age. Over time, your credit score will be calculated based on your entire credit history, and your now-closed oldest credit card wouldn’t count as much as it would’ve if you’d still had it.

Closing a credit card that has a balance

“A credit card with a balance outstanding cannot be closed,” says Ndimande. “The balance needs to be paid in full first before closure, and if you don’t pay that balance, it will hurt your credit score.”

Any unrecovered balance written off by your credit provider would be considered bad debt, and since payment history and consistency count positively towards a healthy credit score, an unpaid debt would do the opposite.

Closing your only credit card

“If there is a good mix of active credit, such as long- and short-term products, these will contribute towards your credit score,” says Ndimande. So, if you only have one other credit agreement besides your only credit card, closing your card can negatively impact your credit score.

Closing the credit card that has the best perks

Are you making the most of everything your credit card offers you? It would be a shame to close a credit card that not only helps you improve your credit score, but offers additional rewards, too. “When taking out a credit card, it is always best to ensure the terms are favourable, such as cost of credit and the benefits that the card provides,” says Ndimande.

With Sanlam Credit Solutions, you can conveniently check your credit score, credit history and recommendations all on one dashboard – for free. Register here.

Sanlam Life Insurance Limited is a Licensed Financial Services Provider.