Does Closing a Credit Card Affect Your Credit Score? (AU)

Quick Answer: Yes — closing a credit card can negatively affect your credit score in Australia, but the impact varies significantly depending on the card's history and your overall credit profile. Closing a card reduces your available credit (increasing utilisation ratio), shortens your credit history length if it's your oldest account, and removes a positive repayment history from your active file. For most Australians, keeping a low-limit card open and occasionally used is better for credit score than closing it. However, if a card carries a high annual fee and you're not using it, the score trade-off may be worth accepting. If existing negative entries on your file are a bigger problem than your credit mix — professional credit repair under the Privacy Act 1988 typically produces far greater score improvement than optimising card management. Australian Credit Solutions — 98% success rate. No Win No Fee. ASIC ACL 532003. Industry Excellence Award 2022, 2023 & 2024. 4.9/5 from 976+ reviews.

The credit card closure question is more nuanced than most people expect. Here's the complete picture.

The Three Ways Closing a Card Affects Your Score

1. Credit Utilisation Rate Increases

Credit utilisation is the percentage of your available credit you're currently using. Under Comprehensive Credit Reporting, bureaus now see your credit limits — and high utilisation is a negative signal. For more detail, see our guide on comprehensive credit reporting (ccr) explained: australia 2026.

Example:

• You have two credit cards: Card A ($5,000 limit) and Card B ($3,000 limit). Total available: $8,000.
• You carry a $2,000 balance on Card A. Current utilisation: 25% ($2,000 ÷ $8,000).
• You close Card B (zero balance). Available credit drops to $5,000.
• Same $2,000 balance on Card A. New utilisation: 40% ($2,000 ÷ $5,000).
• Result: Utilisation jumped 15 percentage points — scoring models view this negatively.

Keeping credit utilisation below 30% is a common benchmark. Closing cards pushes you toward higher utilisation without any change in actual spending.

2. Credit History Length Shortens

The length of your oldest active credit account is a scoring factor. A credit card you've held for 8 years with clean repayment history is a positive signal — it shows long-term responsible credit management.

If you close your oldest card, that 8-year history still shows in your file for 2 years (the CCR window for closed accounts) but eventually fades. Your "oldest account" age resets to whatever card you still have open.

When this matters most: If the card you're considering closing is your oldest credit product. Closing a card opened 3 years ago when you also have a 10-year home loan is less impactful — the home loan remains as your long-history anchor.

3. Credit Mix Narrows

Having a mix of credit types — revolving credit (credit cards) and instalment credit (home loans, car loans, personal loans) — scores slightly better than a single product type. Closing your only credit card while keeping instalment loans narrows your mix.

This is the least significant of the three factors for most people.

When Closing a Credit Card Is Still the Right Decision

Despite the score considerations, there are situations where closing a card makes practical sense:

The general rule: If keeping a card costs you nothing (no annual fee) and has a good repayment history, keeping it open and using it occasionally (one small monthly purchase, paid off immediately) is usually better for your score than closing it.

The "Close Before Home Loan" Myth

Many Australians have been told by mortgage brokers to close credit cards before applying for a home loan — the idea being that credit limits count against you in serviceability calculations.

This is partially correct and partially misleading.

True: Lenders do include credit card limits in serviceability calculations — typically treating 3% of the total credit limit as a monthly liability, whether you use it or not. A $20,000 total credit limit = $600/month assumed liability in lender calculations.

Misleading: Closing the card days before applying doesn't erase the limit from their assessment — lenders can see the account and its recent closure. And closing it reduces your credit score, potentially making the application harder, not easier.

Better approach: Reduce credit card limits (not close accounts) in the months before applying. Lowering a $15,000 limit to $3,000 reduces the serviceability impact while keeping the account history and utilisation benefit active.

Case Study: Sandra, Gold Coast — Kept the Card, Fixed the Default Instead

Sandra, 41, a real estate agent from Surfers Paradise, was planning to close her two credit cards before applying for an investment property loan — she'd read that cards hurt home loan applications. Her credit score was 512, sitting in Below Average.

When she came to Australian Credit Solutions for her free assessment, we identified the real problem: a $1,800 Vodafone default listed in 2021 that had nothing to do with her credit cards. The default had been listed to her previous address — a Section 21D notice failure under the Privacy Act 1988.

We advised Sandra to keep both credit cards open (combined limit $8,000 — manageable for serviceability at her income level) and instead focus on removing the Vodafone default. The default was removed within 44 days. Score improved from 512 to 659 — a 147-point improvement. Sandra's investment loan was approved 3 months later.

Closing the cards would have improved her score by perhaps 0–5 points. Removing the default improved it by 147.

Sandra paid nothing until we succeeded.

Get a free assessment from Australian Credit Solutions →

Step-by-Step: How to Handle Credit Card Closure

If you've decided to close a card, here's how to minimise the score impact:

1. Pay the full balance to zero before closing — closing with an outstanding balance creates a negative account status
2. Redeem all rewards points before closure — they're typically forfeited on account closure
3. Cancel any linked subscriptions before closure — failed payments on closed accounts create late payment markers
4. Request written confirmation of account closure and zero balance
5. Check your credit file 30 days later to confirm the account shows as "closed" with correct balance ($0) and no unexpected entries
6. Don't open a replacement immediately — a new card application creates a hard enquiry

Frequently Asked Questions

Does closing a credit card hurt your credit score in Australia? Yes — closing a credit card can reduce your credit score in Australia through three mechanisms: it increases your credit utilisation ratio (less available credit against the same debt), it may shorten your credit history length (if it's your oldest account), and it reduces your credit mix. The impact is typically 5–30 points depending on your overall profile, but can be more significant if the closed card is your only credit product.

Should I close unused credit cards in Australia? If the card has no annual fee and a good repayment history, keeping it open and using it occasionally (one small purchase monthly, paid off in full) is generally better for your credit score than closing it. If the card has a high annual fee you can't justify, the cost may outweigh the score benefit — close it, but do so strategically (not immediately before any credit applications).

Does reducing a credit card limit affect your credit score? Reducing your credit card limit increases your credit utilisation ratio — similar to closing the card but with less impact. However, it also reduces the liability lenders count in serviceability calculations. Reducing limits is often a better strategy than closure in the months before a home loan application.

Should I close credit cards before applying for a home loan? Not necessarily — and possibly counterproductive. Closing cards shortly before applying reduces your score and doesn't fully eliminate the limit from lender serviceability calculations. A better strategy is to reduce limits (not close accounts) several months before applying, maintain zero or very low balances, and let the lower limits be factored into the serviceability assessment naturally.

How long does a closed credit card stay on your credit file? A closed credit card account remains visible on your credit file for 2 years from the closure date under Comprehensive Credit Reporting. The repayment history from that account continues to show for the same period. After 2 years, the account data is no longer visible in the active file.

Can I reopen a closed credit card in Australia? Usually not — once closed, most card accounts cannot be reopened. You would need to apply for a new card, creating a new hard enquiry. This is another reason to think carefully before closing an account with good history — reopening means starting fresh with a new enquiry and no inherited history.

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Australian Credit Solutions Pty Ltd holds Australian Credit Licence ACL 532003. Credit repair services are subject to individual assessment. Results may vary. This article provides general information only and does not constitute legal or financial advice.

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