Q&A: Closing maxed-out card won't lower credit utilization

Want to improve your score? Focus on paying off the card instead – and keep it open

Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.

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Dear Speaking of Credit
I have three credit card accounts with a total credit of $23,000. One account is paid off monthly, the other two are maxed out. Total credit debt is $10,800 between those two. Would it help my utilization ratio if I close one of those maxed-out accounts? – Millie


Dear Millie,
There are some good reasons for closing a credit card. Ending an annual fee and minimizing the chance of fraudulent use are just a couple. Yet, contrary to popular belief, helping your credit score is not a good reason to close a card.

In fact, we can accurately say that closing a card can either hurt your score, typically via higher credit utilization (balance/credit limit percentage), or have no impact. What a closed card can’t do is lower your utilization or help your score by any other means.

When a card affects credit utilization
As a warning against doing something you may be sorry for later, let’s explore one of the most common ways closing a card can lead to a lower score than if left open. We’ll start by stating a couple of credit scoring rules indicating whether a card will or won’t be included in a score’s utilization calculations:

  • Open or closed, all cards showing both a balance and a credit limit higher than $0 on the credit report are included in utilization.
  • Closed cards with a $0 balance at the time of the score calculation are excluded from utilization calculations.


Video: What is your credit utilization ratio?

What this tell us is that if you close one of those maxed-out cards, as you’re considering, expect no change to the way your utilization is calculated for as long as a balance remains. Not until that balance hits $0 should you see any of the potential downsides to closing a card.

By contrast, as you’ll see below, paying off one of those maxed-out cards while keeping it open would lower your credit utilization – and potentially boost your score.

Possible scenarios to consider
In the spirit of approaching a credit decision as critical as this one with eyes wide open, imagine the following utilization scenario based on a combination of the information you’ve given us and an action – future payoff – to help illustrate:

  • Utilization is calculated on two maxed-out balances, evenly distributed, and a $0 balance card used and paid off monthly.
  • You are considering closing one of the maxed-out cards to help your score.
  • One maxed-out card will be paid in full.

Example A. First let’s take a snapshot of your credit as it might look today:

Example A
All cards open Balance Limit Utilization Open/closed
Card A $5,400 $5,400 100 percent Open
Card B $5,400 $5,400 100 percent Open
Card C $0 $12,200 0 percent Open
Total $10,800 $23,000 47 percent   

Example B. Next, we’ll imagine that you close one of the maxed-out cards. Note that despite Card A now being closed, its balance and limit continue to be applied in the same way as in Example A, leading to the same 47 percent total utilization. This shows how closing a card has no impact on your utilization for as long as a balance remains.

Example B
Card A closed Balance Limit Utilization Open/closed
Card A $5,400 $5,400 100 percent Closed
Card B $5,400 $5,400 100 percent Open
Card C $0 $12,200 0 percent Open
Total $10,800 $23,000 47 percent   

Examples C and D. Now, according to whether Card A is open or closed, we’ll observe a couple of different utilization percentages resulting from the card being paid in full the following month. Specifically, we will see how:

  • Total utilization goes down to 31 percent when Card A is closed prior to payoff.
  • Total utilization goes down even further, to 24 percent, when Card A remains open.
Example C
Card A closed, $0 balance Balance Limit Utilization Open/closed
Card A $0 $0 Not included Closed
Card B $5,400 $5,400 100 percent Open
Card C $0 $12,200 0 percent Open
Total $5,400 $17,600 31 percent   


Example D
Card A open, $0 balance Balance Limit Utilization Open/closed
Card A $0 $5,400 0 percent Open
Card B $5,400 $5,400 100 percent Open
Card C $0 $12,200 0 percent Open
Total $5,400 $23,000 24 percent   


Summing it all up, the above examples demonstrate how someone in your credit predicament can achieve the lowest utilization percentages in the long run by simply leaving cards open whenever possible.

With this in mind, and while also remembering that closing a card will never help your score, why do it? Concentrate on paying off at least one of your maxed-out cards instead – and leave it open.

I hope this help you make an informed decision. Good luck!

See related: Don't close maxed-out card after you pay off debt, Credit utilization: How this key scoring factor works

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Updated: 02-17-2019