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How to Cancel a Credit Card: All You Need To know

There are plenty of good reasons why you would want to close a credit card –  you have too many of them, the issuer increased your annual fee or you would like to prevent yourself from getting into debt. However, there are a couple of things to remember - here's the right way to do it.

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

There’s a correct way to close your credit card account and you should follow it.  If you don’t, the card issuer might continue to charge you with fees and penalties even if you are no longer using the card.  You could also become vulnerable to fraud because someone else might use your card details without your knowledge.  Of course, these things will have to appear in your report.

Anyway, if you’ve decided to close your credit card for whatever reason, read on to find how you should do it.

Should I Close My Credit Card? Things To Consider

As we said, there’s a phalanx of reasons why people would want to cancel their cards.  If you’re canceling them just to get things out of your bulky wallet, remember the following:

1. Credit Score Impact

Before you pick up the phone to ask your card issuer to close your account, you need to consider whether that card will impact your credit score. Closing a card is not ‘erasing’ your past records so it does not remove them from your credit report nor does it delete any associated payment history from your report.

If you were hoping that closing your credit card will wipe out your history of late payments, you’re out of luck.  Negative payment histories will haunt your report for at least seven years.

You should try to bring your account back into a good status so they can factor the positive payment status into your credit score.  If you eventually decide to close it, the positive status will stay on your report for around 10 more years.  If you close your account with a past due status, it will linger in the report for seven years.
 credit score factors

Can I cancel credit card without affecting credit score?

There is a myth that closing a credit card can affect your credit score, but this is mostly due to a reduction in your available credit. Lenders will often look at your credit utilization ratio, which is the amount of debt as a percentage of your available credit. So, if you have $1000 of debt and $10,000 of available credit, your ratio is 10%. However, if you then close out a credit card, which has a $2,000 limit, your ratio will increase to 12.5%.

In most cases, this will not be a problem, providing you can keep your ratio below 30%.

So, to cancel your credit card without damaging your credit, you should pay off the balance and redeem any unused rewards. Contact your card issuer to confirm your closing balance is $0 and that you wish to close the account. You should then check your credit reports approximately 45 days after cancelation to ensure the reports show the account was closed by the cardholder and the balance was $0. If the information on the reports is incorrect, be sure to promptly dispute this with all three credit bureaus.

2. Consider Age of Credit

The age of your credit accounts has an impact on your credit scores.

Here’s how it works:  the longer credit history you have, the better it is.  So, if you close an account that you’ve enjoyed for a long time, it will eventually fall off from your credit report. It will also pull down the average age of your accounts.  That can affect your credit scores negatively.

Before you close an account that you had for a long time, think it through if you really need to.  If you’re not using it and wants to avoid the temptation to use it on a whim, leave it in a drawer at home.

Having said that, consider using the card to make one small purchase each year that you can pay off immediately, so the card company doesn’t cancel it automatically due to dormancy or absence of activity.

3. Understand Credit Utilization Ratio

Your credit utilization ratio largely affects your credit score. The ratio is the amount of credit you use on a regular basis taken in relation to the amount of credit available to you.

This chart created with Experian data shows that those with an average to good credit score have an average credit utilization ratio of the optimum 33%. This ratio drops significantly for those with very good and excellent scores.

At the other end of the scale, the chart shows that those with poor credit scores typically have a very high credit utilization ratio, with an average of 73%. This will be a massive factor in lending decisions for those in this group.

Average Credit Utilization Ratio by Score

So, when you close a credit account, you are decreasing the amount of credit that is available to you.  The impact of this is that it will increase your credit utilization rate. For example, you have a total credit that’s available to your cards for a total of $20,000 and you normally spend about $4,000 per month.

In this case, your credit utilization ratio is $4,000/$2000 or 20%.  Let’s say you close a credit card that has a limit of $8,000 which will bring down your total available credit to $12,000.  If you continue to spend the same amount, your credit utilization ratio will dramatically change.

So, $4,000/$12,000, your credit utilization ratio will go up to 33%.  If you want to have a good credit utilization score, try to keep it under 30%.  If you can manage 10%, all the more advantageous for your score.

4. The Annual Fee Dilemma

It is a good move to cancel a credit card that keeps charging you an annual fee when you don’t use it much and you’re not getting any benefit in terms of rewards or other perks.

If the annual fee is the only reason why you want to close the card, you have other options.

  You can call your card issuer and request for a waiver of the annual fee or at least convert your card into another card product that doesn’t charge an annual fee. This way, you soften any hit on your credit score if you decide to close the credit card altogether.

But if you want to close your card just because you think they should not charge you an annual fee in the first place, call your card company first and try to see if you could come to a win-win arrangement.

When Cancelling Your Card Can Be a Good Idea?

Canceling a credit card is usually a bad idea. Nevertheless, there are some circumstances in which a card cancellation could be in your best interest. Here are three.

  • Fees – if your card issuer charges you a high annual fee for an account you don’t use, cancellation might be warranted. However, if you receive benefits from the account that outweigh the annual fee, such as travel credits and perks, it might be worth the cost.
  • Healthier Money Habits-  some people find the temptation to use credit cards too much to resist. And while this might be a valid reason to close a card for some, there are other ways you can try to curb overspending without sacrificing your credit score.
  • Divorce – It’s best to close joint credit card accounts during a separation or divorce. As a joint card holder, you’ll be liable for any past or future charges made on the account. It’s not uncommon for an angry ex to run up excessive charges on a joint card out of spite.

The Right Steps to Cancel Your Credit Card

1. Pay off Your Balance

You can close your card anytime – even if you still have an outstanding balance.  However, your credit score may suffer because your total outstanding debt will remain the same while your available credit will decrease.  This will cause your credit utilization ration to appear higher.

Remember that your credit utilization ratio is part of the second biggest factor that determines your credit score.

Even if you have closed your credit card, you will have to continue paying every month if you still have a balance until you’ve paid it off.  If you can afford it, pay off the balance on the credit card before you close it.  This will dilute the impact on your credit score and you’ll have one less debt to pay off every month.

Now, what if you want to pay off your card but you just can’t afford it right now?  Well, you can transfer the balance to another credit card.

However, you should pick one without any balance (one that you haven’t been using) or one that can give you a promotional interest rate.  You might even find one that can offer zero-interest for a certain period so that can give you time to pay off the balance without having to worry about interest.

2. Redeem All Your Points And Rewards

After you’ve closed your credit card, you can’t benefit from any points or rewards you’ve worked so hard to get.

So, before you close your card, check your rewards balance to see if you may be able to benefit from it significantly.  You may try redeeming your rewards as a statement credit so you can reduce your final outstanding balance.

Take note, however, that credit card companies have redemption guidelines and if you have not yet met their redemption threshold, you may have to forfeit all your points and rewards. For example, your credit card issuer requires you to redeem in increments of $25 but you only have $20.

3. Cancel Your Card

Most card companies would just need your phone call to cancel your card.  The number to call is on the back of the card or you may refer to the list below.

Card issuers just hate losing accounts so the representative who will take your call will try to convince you to change your mind.  He will probably remind you of the many benefits of having a card and might go to the extent of offering you better terms.

You may consider the offer only if it answers your concerns with your credit card. To formalize your request, the issuer may send you a letter or an email that requires a response from you before they close your account.

You do not need to send a certified letter to the card company for this purpose unless the cancellation is due to a divorce proceeding and the written confirmation will form part of the documentation.

Many people think that you can’t close a credit card without settling all the balance first.  That is wrong.  Card companies can close a card with a balance so the cardholder can’t add any additional charges to the account.

However, they will bill the cardholder for the outstanding balance until it is finally paid off.  If you are closing a card with an outstanding balance, first confirm with the issuer the total remaining balance.  Ask when the next due date will be as well as the payoff schedule and preferably, get this in black and white.

The best thing is to pay off the balance before you cancel the card.  This way, you protect yourself from late fees and future interest should you inadvertently skip a payment.

4. Closing a Credit Card: The Alternatives 

If you want to get rid of your card because of its expensive annual fee or above-normal interest rate, you can try to renegotiate for better terms with your issuer.

Since card companies want to retain the good customers (those who consistently pay on time), they might be willing to waive or reduce the annual fee for the next year or cut down a fraction off your interest rate.

If that doesn’t work and you still don’t want to pay an annual fee, you can request for a downgrade from your premier credit card with a fee to a plain card that has no annual fee.  Just remember that by doing this, you may forfeit some credit card benefits or rewards.  The new card should still be a good fit for your lifestyle.

If the card you want to close has no annual fee but you’re not actually using it, you can keep the account open but disable the card by cutting it up or punching a hole through it.

You’ll retain the credit facility for the sake of your credit score and remove the temptation to spend unnecessarily.  Just check your account every six months to make sure your card is still active because the card company might close it for inactivity.

You might need to make a small purchase once a year to keep it active so, buy something online where you don’t have to present the physical card.

Cancelling a Credit Card - FAQs

Most card issuers allow you to cancel a credit card with a balance, but you will need to make provisions to pay any outstanding debt. The card issuer will often have an online form or a helpline number for you to cancel your card. This process will typically involve providing details for a balance transfer or another card so the remaining balance can be paid.

This will allow you to have an up to date figure, including the latest interest calculations, so you know exactly how much you need to pay to bring the card balance down to zero. At this point the card will be officially canceled and your credit card account will be closed.

If your credit card has an annual fee, it may reach a point where it is not economically viable to keep the account open. It is possible to cancel the account before the next annual fee is due, but you will need to check the cut off date to do this.

Most card issuers charge the annual fee on the anniversary date of the account opening, so you will have a grace period where you can cancel the card before another annual fee is applied.

These days many credit card issuers have online support, which allows you to perform most of your account management. This may include canceling your credit card. However, this will depend on your provider. Some providers still require that you call a customer support line to complete the account closure, while others allow you to fully complete the process online.

If you’re unsure whether you can cancel your credit card online, check on your card provider’s website.