What Happens When You Close a Personal Line of Credit?
Deciding to close a personal line of credit is usually simple. What follows that decision — paperwork, a remaining balance, and a shift in the numbers a credit report shows — tends to take longer to sort out than the closure itself.
The short answer
Closing a personal line of credit generally requires paying off any outstanding balance first, then formally requesting closure from the lender and getting written confirmation that the account is closed rather than just inactive. The closure typically reduces total available credit, which can affect a credit utilization calculation, and it removes the account from future credit history length once it eventually drops off a credit report. None of that makes closing wrong, but it’s worth understanding before requesting it.
Paying off any remaining balance
A line of credit generally can’t be closed with an outstanding balance still owed. Most lenders require that balance to be paid in full first, sometimes with a short grace period to allow a final payment to post, before the account is actually terminated. Someone who has been drawing on the line regularly may need to plan for this payoff in advance rather than assuming closure can happen the same day a request is made.
Effects on credit utilization and credit mix
Closing an account that isn’t being used stops any further draws, but it also removes that credit limit from the total figure used to calculate credit utilization, which can push the utilization on remaining accounts higher even if actual spending hasn’t changed. It can also shift the overall credit mix on file, since a revolving line of credit is a different account type than an installment loan or credit card. These effects are similar in kind to what happens when closing an old credit card, and neither one guarantees a particular outcome, since scoring models weigh many factors together.
Effects on credit history length
An open account, even an old and rarely used one, contributes to the average age of accounts on a credit report for as long as it stays open. Closing it doesn’t erase that history immediately, since closed accounts in good standing typically remain on a credit report for a number of years, but it does mean the account eventually ages out of the file instead of continuing to count toward account history going forward.
Getting formal confirmation
A request to close a line of credit isn’t complete until the lender confirms in writing that the account has been closed, not merely frozen or set to a zero balance. Keeping that confirmation, along with a final statement showing a zero balance, provides a record in case a fee or charge appears on the account after the closure request was made. It’s also worth checking a credit report a billing cycle or two later to confirm the account is reporting as closed rather than still open.
What to weigh
There’s rarely one right time to close a personal line of credit that isn’t being used. The decision usually comes down to comparing the ongoing cost or risk of keeping the account open against the effect closing it may have on utilization and account history, and that balance looks different depending on someone’s overall credit picture and how many other open accounts they carry.