Is It Bad for Your Credit to Cancel a Credit Card After It Is Paid Off?

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Your credit score is based upon your credit report, according to MyFICO. The score ranges from a low of 300 up to 850, and the higher your score, the better. The score measures five key areas: 35 percent is how well you do or don't pay your bills, 30 percent is the total amount of debt you have, 15 percent is the length of your credit history, 10 percent is the mix of credit types on you report and the final 10 percent reflects how much new credit you have applied for recently.

According to Equifax, how badly closing a credit card affects your credit depends upon the other items present in your report, and the results will vary from person to person. According to MyFICO, closing a credit card can affect your credit length. FICO takes an average of all the credit accounts you have, and the longer this history, the higher your credit score because it shows you've managed credit for a long period of time.

If you close an older card that you've had for a long time, especially if it's the oldest card you have, it can shorten the average length of your credit history, which is 15 percent of the score, and this could cause your score to drop.

Another area of your credit that may be affected by is your credit utilization ratio. To achieve this ratio, FICO measures how much available credit you have versus how much of that available credit you're using at any one given time. More available credit means a lower ratio and thus a higher credit score. However, the less available credit you have, the higher this ratio will be and the lower your credit score. Closing a credit card reduces the overall amount of available credit on your report, and this can lower your score depending upon how much other debt you still have.

To maintain your credit score, Bankrate suggests that once the card is paid off, you keep it open, even if you don't plan on using it again. This way, you maintain the credit history that you've accumulated and the unused available credit will help keep your debt-to-credit ratio low. If you must cancel a credit card, cancel the most recent card because this will have less of an impact on the length of your credit history.