I Closed One Credit Card And Lost 24 Points

I closed a card in 2018 because it charged a $95 annual fee and I had stopped using it. Sensible, tidy, obviously correct. Three weeks later my score was down 24 points and I had no idea why.

It was not the closing. It was a piece of arithmetic running in the background that I did not know was there.

The number that moves first

Credit utilisation is the share of your available credit you are using. Add up every balance, add up every limit, divide the first by the second.

Say you hold three cards with limits of $6,000, $5,000 and $4,000. That is $15,000 of available credit. You carry $3,000 across them, so utilisation is $3,000 divided by $15,000, which is 20 per cent.

Close the $5,000 card and your limits drop to $10,000. The debt has not moved by a cent. Utilisation is now $3,000 divided by $10,000, or 30 per cent.

Ten points worse on the metric that usually sits second only to payment history, and nothing about your behaviour changed. You removed a denominator.

My 24 points came back within two months, which is the useful half of this. Utilisation is reported fresh each cycle and carries no memory, so unlike a missed payment it leaves no scar. Pay the balance down or get the limit back up and the number follows immediately.

The age effect is slower, and stranger

The other common worry is account age, and in the short run the worry is misplaced. Closed accounts in good standing generally remain on your credit report for around ten years, and while they sit there they keep counting toward the length of your credit history.

So closing your oldest card does not age your file overnight. It sets a timer. The hit lands in a decade, when the account finally drops off and your average age recalculates without it, which is an odd thing to schedule for a version of yourself you have not met.

If the card you are thinking about closing is also your oldest, that is the reason to keep it, and it has nothing to do with this month's number.

When closing is genuinely right

There are real reasons and I am not trying to talk anyone out of them.

• An annual fee you are getting no value from, on a card the issuer will not downgrade to a no fee version.
• A card that is an actual spending trigger, where a few score points are cheaper than the balance you keep running on it.
• A joint account or an authorised user arrangement tied to a relationship that has ended.
• An issuer whose security or servicing you have stopped trusting.

What is almost never a reason is tidiness. An unused card with no fee costs you nothing and holds a limit that is doing quiet work in your denominator every single month.

Ask for the downgrade first

Before closing a card that charges a fee, call the issuer and ask to product change it to a no annual fee card in the same family. The account number, the open date and usually the limit all survive, so your utilisation and your history are untouched and the fee stops.

Issuers do this routinely. They also rarely mention it, because the person answering the phone is reading a script about retention offers, and product change is a phrase you have to say first.

What to do today

Find your oldest card. Put one small recurring charge on it, something automatic you would pay anyway, and set the card to autopay the statement balance in full.

A streaming subscription is perfect. Nine dollars a month keeps the account active, keeps the limit inside your total, and keeps you off the list issuers work through when they close dormant accounts, which they are allowed to do without asking you and which puts you back at the start of this article.

That is the entire maintenance job. One charge, one autopay, and a card that spends the next twenty years quietly being the oldest thing on your report.