Credit Q&A: Will Canceling a Card Hurt My Score?

Q: My credit card was compromised. Will my score be affected if I close the account?

A: It shouldn’t be, as long as you replace the card with another from the same issuer.

According to Barry Paperno, manager of consumer operations for MyFICO.com, closing a credit card account could potentially impact your credit score in several ways.

First, it could skew your credit utilization ratio – how much credit you have used versus how much is available – as closing the account will shut off the funding that particular card provides.

Secondly, FICO rewards consumers for keeping an ideal number of credit cards open. The number varies from profile to profile, so consumers can never be too sure that closing an account won’t make them lose the points that were amassed for having the magic number of cards.

Paperno believes that neither of these potential side effects would cause your score to plummet as much as an unpaid bill would.

“It’s not going to have a large impact,” he says. “In most cases, it would be just a couple of points.”

What consumers typically do in the instance of fraud (or the threat of fraud) is close the account and immediately replace it with a new card that adheres to the same terms and conditions as the original. This means that their credit utilization ratio remains the same as the number of active cards on file and their score remains intact.

Paperno says there is the outside chance that your issuer could do something funny, like generate a credit inquiry for the new card that could potentially cost you a few points, so you might want to ask your financial institution whether it intends to do so. However, he reiterates that the points lost to a potential credit inquiry would be minimal.

As a side note, one area that consumers shouldn’t be overly concerned about when it comes to closing cards is how it will affect the age of their credit report, contrary to what their financial institution may or may not tell them. This is because, as Paperno says, FICO looks at closed accounts when it calculates your score.

“As long as the account is on the credit report, regardless of whether it's open or closed, you are going to get the benefit of the age of the account, plain and simple,” John Ulzheimer, president of consumer education for SmartCredit.com, says. He explains that the bureaus are likely to keep a closed account on file, even if the lender chooses to stop reporting the account.

“The credit bureaus can choose to eventually remove it, and most of them do so after 10 years of inactivity,” Ulzheimer says.  “But by then everything else has aged 10 more years so it's really a painless event.”

Want to know what affects your credit score? Email your questions to editors@mainstreet.com.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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