The short answer is yes – cancelling a credit card can have a negative effect on your credit score.  Let us look into why this can happen.  Then we will explore reasons why you still might want to close that credit card account.

Erasing Good History

If you close a credit card account, even if you have found an alternative best credit card deal, any good history associated with the old card is kept on your credit report for ten years.  If you did not cancel the credit card, then the account history stays on for twenty years on your credit report.  Notice that if you had any bad credit history, it stays on your report, even if you do cancel the credit card.  Therefore, this scenario does not work both ways.

Cutting Down Your Debt to Credit Ratio

Another way that closing a credit card account can have a negative effect on your credit score is when you have a zero balance on the credit card.  What this can do is reduce your debt to credit ratio by whatever you could have charged to that credit card.  This is a simple fractions problem.

Are there any reasons why you should close a credit card?

Without a doubt, closing a credit card will lower your credit score.  This may not be reason enough to keep an inactive credit card account open.  Here are some good reasons for closing a credit card.

For most people wanting to curtail their credit card usage, freezing the cards in water or cutting them up is usually enough.  Nevertheless, for those who truly have a hard time not charging more than they can pay, closing a credit card can help.  Before closing a credit card, consider calling the company and asking them to reduce the maximum limit on the card. They do not want to lose you as a customer.  If you tell them you are considering closing the account, they may work with you, and offer you a better credit card deal.

Another reason to close a credit card is if you have one that actually charges you an annual fee.  Call the credit card company to see if you can get them to stop the annual fee.  Otherwise, it is not worth it to continue to pay an annual fee for a credit card if you do not use it.

Another reason people like to close inactive credit cards is to minimize the amount of overhead involved with managing your credit cards.  Consider for example the problem of identity theft or if somebody were to steal your wallet or purse.  One less credit card account means one less credit card account information you have to maintain or protect from the wrong people.