How do you cancel a credit card? And, more importantly, should you?
If you’re trapped under a mountain of interest-bloated debt or feel stuck with a no-longer-useful card, you may be tempted to call up your bank, tell them you’re done, and get out the scissors to make it final.
Before you do that, however, know this: keeping a credit card account open (even if the card itself is headed for the freezer) is usually much better for your financial health than closing it down. But we’ll get into that in more detail later on.
For now, let’s look at what we’ll be covering:
- When to cancel a credit card
- Does cancelling a credit card affect my credit?
- Consider a product switch
- How to cancel a credit card in 5 easy steps
- Pay off your credit card
- Redeem your credit card points
- Cancel or update recurring payments
- Confirm the credit card has been cancelled
- Get a credit report
When to cancel a credit card
In general, experts recommend keeping an unwanted credit card account open, even if you’re barely using it. The more cards you have (and the longer you have them for), the more extensive your credit history will be, which will have a positive effect on your credit score (assuming you don’t have any missed or late payments and haven’t gone over your credit limit).
That being said, there are cases where closing the account makes sense. These include:
- A divorce or separation where you and your partner share a card
- Paying higher-than-average interest and annual fees on a card you don’t use (for example, a high-rewards travel card if you no longer travel)
- Finding yourself unable to curb your spending despite many attempts
- Having too many cards to use efficiently
- A stolen and/or fraudulently used card
- Finding yourself with a mountain of debt you’d like to consolidate
But what if your oldest card comes with an annual fee? Should you still be paying for a card you never use, just to build your credit? Ask your bank if you’re able to downgrade your card to one with a lower fee (or, even better, no fee). This will protect your credit score and history from damage and save you money at the same time. Just make sure you can still keep the card active without transactions, as each bank has different rules around cancelling inactive cards.
Does cancelling a credit card affect my credit score?
It could, but there are plenty of ways to make sure it doesn’t have an overly negative impact. Certain factors involved in cancelling a card, such as your payment history and hard credit inquiries, have the ability to hurt your credit, but in this section we’ll focus on two big elements: credit utilization and credit history.
Your credit utilization ratio refers to the amount of available credit you have vs. the amount you regularly use. Ideally, you want your rate of utilization to be no higher than 30%. That means that if you have $10,000 of credit at your disposal, you don’t want your balance to exceed or fall below $3000. Going over your credit utilization rate can hurt your score by making you seem like a risky borrower.
So what does this have to do with cancelling a credit card? If you have more than one card, your total available credit is the combined limit of all, so closing down one account (especially if it has a high credit limit) can diminish that number and throw off your rate of utilization, making it look like you’re spending beyond your means to potential lenders.
One way to avoid this is to request a credit limit increase on the remaining cards you intend to keep. This will even the scales and prevent you from having to pull back your normal spending.
Your credit history tells lenders how many years you’ve had open credit cards, how long your oldest card has been active, and the average age of all your credit cards combined. When you cancel a card, you’re effectively shrinking that history down to the remaining ones that are active.
This may not have an immediate effect, as old cards can stay on your record for up to 10 years after being closed, but your credit will take a hit in the long run.
For example: you have two credit cards. One is 9 years old, and another you’ve only had for 3 years. You don’t want to continue paying fees and interest on the oldest card, so you decide to cancel it. After a decade, you’ve got an impressive credit history of 13 years on your remaining card. Pretty great, right? But if you hadn’t cancelled your old card, it would have had 19 years on it, boosting your credit history even more.
This is why experts recommend keeping your oldest card open. Just make sure it’s being used, even if it’s only to pay a small monthly bill. An inactive card runs the risk of being automatically cancelled by the issuer after a certain period, which can be damaging to your credit score.
Providing you pay your statement every month, the years on your credit history represent dependability to lenders, which is important if you want to make major purchases down the line.
Consider a product switch
If your reasons for cancelling a credit card have to do with high interest, annual fees, and lackluster rewards, a product switch might be something to consider.
Product switching is basically what it sounds like: contacting your provider and asking to upgrade or downgrade your current credit card for one that better suits your needs. Depending on the bank, they may even be able to transfer your existing credit limit and history to the new card, minimizing the impact on your credit score. If you’d rather switch to a new card with a whole new provider, that’s also doable, but keep in mind that the credit check usually associated with switching providers can affect your score.
How to cancel a credit card in 5 easy steps
Pay off your credit card
Paying off your remaining balance is a crucial first step in cancelling a credit card. Some think that cancelling a card will make it’s associated debt go away. While this is a beautiful dream, the reality is that the money you owe follows you everywhere.
Your remaining balance will continue to accumulate interest, so it's best to face it head-on. Trying to pay off a balance on a closed credit card is much more stressful, as your bank may have transferred your debt to a collection agency.
If you’re unable to get your balance to zero, you may be able to transfer it to a balance transfer card for a small fee (usually around 3% of the total). These cards have very low promotional interest rates (usually lasting six to twelve months), allowing you to pay off your debt faster, and some even offer to waive or rebate their fee. Regardless, paying a small balance transfer fee is still preferable to carrying on debt month to month, so it’s worth looking into.
After paying off your entire balance, wait a few weeks before cancelling your card to catch any pending payments that may have shown up late. In addition, make sure to contact your card issuer to ensure your card still has no balance before closing it down.
Redeem your credit card points
If the card you’re cancelling has remaining points or rewards attached to it, you’ll want to use those before the account is closed. Some providers will erase your rewards as soon as your card is cancelled, while others will allow you to spend them for another 30-60 days post-cancellation, so find out exactly how long you’ll have.
If your card is associated with a separate loyalty program (such as Air Miles), you won’t be in danger of losing your points as they’re tied to the membership program and not the card itself. In many cases, however, you can transfer your loyalty points to your new card if it’s from the same issuer.
Cancel or update recurring payments
If there are any recurring payments (such as bills or subscriptions) tied to the card you’re cancelling, make sure to transfer them to an active card or cancel the service. The last thing you want is a new balance on a closed account because a service provider never received your updated information.
Confirm the credit card has been cancelled
After cancelling your card, request a written confirmation to be mailed to you as well as verification that the account balance is $0. This will protect you in case the account is mistakenly left open and begins accumulating interest and fees.
Get a credit report
An extra step to confirming the account has been cancelled is obtaining a copy of your credit report. There, you can view all the credit accounts listed under your name and verify that your closed account is no longer included.
If you happen to still see the card still active on your report, you’ll need to file a credit report dispute and provide relevant documents as proof of your cancellation request. This is where a written confirmation comes in handy.
The bottom line
Experts agree that cancelling a credit card can have a negative impact on your credit score, so leave it active, especially if the card in question has a long history. Assigning an old card to pay even one monthly bill will keep your credit utilization and history from shrinking, adding value in the eyes of lenders and keeping your score high.
If you must do it, contact your provider using the phone number on the back of your card, and use our tips above to ensure a smooth process that will be easy on your credit. Be sure to share any other tips in the comments below.