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A Canadian woman at her laptop contemplating how closing her old credit card will affect her credit score.

The Get

Is it true that closing old credit cards boosts your score?

For this week’s Reality Cheque, we’re looking at closing credit cards and the impact on your credit score.

By Renée Sylvestre-Williams

You’ve stared at your credit score numbers day after day, mentally trying to push those three digits up into the 800s, but they’re not moving. You want to get a loan or a mortgage and need your score to get as high as possible, so you think, “I’ve got a credit card that I haven’t used in years, cancelling it should help.”

Wait. Stop. Before you Marie Kondo your credit sitch, let’s talk: what’s a credit score and what affects it?

A credit score is the summary of the information in our credit report at a particular point in time. Your score is a three-digit number rating and, generally, the higher it is, the better. A credit report is a summary of your borrowing history, including actions such as paying off loans and opening credit cards.

So, you’re about to log onto your banking app or march into the bank and righteously demand that your credit card be cancelled. Is that smart, though? Let’s look at whether cancelling old credit cards actually changes your credit score.

The short answer: yes.

The long answer: but not in the way you might expect.

How closing credit cards and other credit accounts affect your credit score

We need to look at two main things: credit history and utilization. Let’s start with credit history.

Know your credit history

Doug Hoyes, co-founder of Hoyes, Michalos & Associates, an insolvency firm in Ontario says, “So a [tradeline] that you’ve had for five years will support your credit score more than a tradeline you had for five months.” A tradeline is the reporting history of an individual account, such as a credit card or a mortgage. That means the older your credit history, the better it is for your credit report, which can keep your credit score higher than it would otherwise.

If you cancel your oldest credit card, the one that’s been around for 15 years, its positive history will stay on your record for at least a decade, then disappear. Once it drops off, only the newer card remains, lowering both the age of your oldest account and the average age of your accounts—two numbers that impact your credit score.

On the other hand, if you’d kept the old card open, after that same 10 years you’d have an active tradeline that’s 25 years old, which would boost your credit profile.

Do this, and your credit score could drop. Now, if you have a very long credit history with all your credit cards, it won’t matter much if you cancel one or two of them as you’ll continue building history with your remaining cards.

Next, credit utilization

Credit utilization means the percentage of available credit that you’re accessing.

As Hoyes explains, “If I have two credit cards, each with a $10,000 authorized limit, and I’m using 2,000 bucks on each, I’m at a 20% utilization,” he says. “If I close one of my cards and transfer the balance, I’ve got $4,000 on my remaining $10,000 card. My utilization just doubled to 40%.” That means you’re using more of your available credit, and financial institutions don’t typically like that. You may be seen as over-leveraged and at risk of defaulting on your monthly payments.

The two major credit companies, TransUnion and Equifax, like a sweet spot of 30% or less utilization rate. Consider which side of 30% are you on if you’re thinking of closing a card. (Check out Neo’s AMA with Equifax.)

What should you do to boost your credit score?

So, what can you do instead of cancelling your credit cards? Hoyes says you should pay off your credit card bills every month and keep your debt levels as low as possible. That will help boost your score.

You can also save some money by switching to a no-fee card. But make sure that the card is from the same family as your existing cards, as a brand-spanking new card could trigger a new hard credit check and temporarily drop your credit score, says Hoyes.

Finally, stop checking your credit score on a daily or weekly basis. “There are more important things—like saving money and keeping your debt levels low,” says Hoyes.

Renée Sylvestre-Williams is a Toronto-based journalist and author. She has written for the Toronto Star, The Walrus and Canadian Family Offices. She is the editor-in-chief of The Budgette newsletter and author of the upcoming book The Singles Tax: No-Nonsense Financial Advice for Solo Earners.