How to cancel a credit card the smart way

Man trying to cancel a credit card on the phoneImage: Man trying to cancel a credit card on the phone

In a Nutshell

Canceling a credit card might seem like a simple process, but it’s best to consider it carefully before you act. In some cases, canceling a card can hurt your credit. Read on for what to consider before you cancel a credit card and how to cancel in the most effective way.
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If you’re wondering how to cancel a credit card, it’s best to think over the decision first.

In fact, the consequences of closing a credit card could stick to your credit scores and reports for a long time.

Canceling a credit card might seem like a simple way to move on to a new, better option — or maybe you want to end a relationship with a card that you now realize was too costly and partly to blame for your debt problems. But a closed credit card can stick out like a sore thumb on your credit reports and affect your scores considerably.

That doesn’t mean it’s always a bad idea to close a credit card. But it’s important to know what you’re getting into first. Let’s go over some things you should think about when considering closing a credit card and how it can affect your credit.

Steps to permanently cancel your credit card

If you’ve considered all your options and still want to go through with canceling a credit card, here are the steps for how to do it.

1. Pay off your remaining credit card balance.

Think of canceling your card as a clean break. The last thing you want is to owe money on a credit card that you have to keep paying for after you close it.

2. Cancel recurring payments.

If you’ve set up any recurring payments for your bills, make sure to update your payment information.

3. See if you need to redeem your rewards.

Rewards sometimes expire after your card account is closed, so check your program’s terms to see if you need to use your rewards before canceling. If you’re having trouble getting out of debt and have rewards, you might be able to redeem them toward a statement credit to help you pay off your balance.

4. Call your credit card issuer.

You should be able to find the number for customer service on the back of your card. To start the process, tell them you’d like to cancel your credit card.

5. Go to your credit card’s website.

Alternatively, if you don’t want to speak with customer service over the phone, you might be able to cancel online after logging into your account.

6. Follow up in writing.

After you cancel, it’s good practice to send an email or write a letter to your credit card issuer to confirm your card has been canceled. That way, if there’s a mistake and you find out your card is still open, you can document the date you requested the cancellation.

7. Double check your credit reports.

If you don’t want to take your credit card issuer’s word for it, you can comb through your credit reports to make sure they reflect that your card has been closed.

8. Cut it up.

A simple but important step. Cutting up your credit card can help make sure no one tries to use it after it’s been closed.

Does canceling a credit card hurt your credit?

It’s possible that canceling a credit card, especially one that you’ve used for a long time, could have a negative effect to your credit score. There are five major factors that influence your credit scores: payment history, amounts owed, length of credit history, new credit and credit mix. Canceling a credit card could affect each of these factors — and in turn, your scores.

Let’s take a look at how canceling a credit card could affect each of these major credit factors.

Payment history

Making on-time and in-full payments consistently is a common way to use a credit card to build credit. If you’re able to do so, this can be a straightforward way to help your credit.

On the other hand, if you think you might have trouble paying off your balance every month over the long term, closing the card could protect you from future activity that would harm your credit. But if you currently have a balance on your card and want to close the card, you’ll need to discuss your options with your issuer first.

Amounts owed

Credit bureaus track the amount of money you owe on your accounts to ensure you’re not using too much of your available credit. Known as your credit utilization rate, this percentage compares the amount of money you owe to the amount of credit that’s available to you. A lower rate is usually better.

If you can only afford to make the minimum payment each month and you’re carrying a balance, your credit utilization rate will stay higher and could hurt your credit scores.

But closing your credit card might only make it worse if it significantly lowers your total available credit. If you’re planning to close a card without opening another line of credit, you could see a major impact to your scores.

Length of credit history

A longer active credit history is usually better for your credit. In general, lenders like to see that you have a track record of managing credit effectively over time.

But when you close a credit card, that card stops aging and can’t grow. That will cut into your active credit history for at least as long as it takes to get another account growing.

And if the card you’re thinking of closing was also your first credit card, we strongly recommend keeping it open even if you rarely use it. As your oldest line of credit, it will have the biggest impact on the length of your credit history.

New credit

When you apply for a new credit card, you might notice a hard inquiry on your credit reports. This shows that the lender checked your credit before deciding whether to approve your account.

Closing your credit card won’t affect your new credit unless you’re closing it to open a new card. If you feel more comfortable having only one credit card at a time, this might seem like a sensible approach.

We don’t want to discourage you from opening a new credit card that better fits your needs and habits. But you should be aware that the new credit card application will trigger a hard inquiry and affect your scores in the short term. If you go through with that application and close your old account at the same time, that effect could be considerable.

Credit mix

Lenders like to see that you can handle a mix of revolving credit (like a credit card) and installment credit (like a loan with a fixed payment every month).

If you’re thinking of closing your only credit card and not opening another, you could end up removing revolving credit from your reports entirely. In that case, lenders won’t be able to assess the variety of credit you use and might be less likely to work with you.

Is it better to cancel unused credits cards or keep them?

If you currently rely on your credit card for common expenses, canceling a card could prompt you to change many of your habits. And even if you have other cards, it’s a good idea to think about how you’ll pay for things after canceling your card.

For instance, if you use your credit card to pay for day-to-day expenses at grocery stores, restaurants and gas stations, you’ll have to figure out a new method of payment. If the card you used previously at those locations earned rewards, you might also be losing out on similar benefits moving forward. If you plan to use another card, look into its features and see if it’s an equally good option.

On the other hand, you might have already decided you prefer to pay with a debit card, check or cash. But each of those options comes with its own specific uses and potential issues, too, so consider what that future might look like before acting.

Even if closing a credit card won’t affect your lifestyle or credit profile too much, it still might be easier not to close the card. In fact, there are several alternatives that could end up being less risky.

Put the card in a drawer

Maybe you’ve decided you just don’t like using credit cards. If that’s the case, consider keeping the card and putting it away instead of closing it. This course of action might seem obvious, but keeping the account open while removing the temptation to use the card could be a straightforward way to keep the card without harming your credit.

Find another way to handle mounting debt

If you’re trying to get out of credit card debt and don’t want to add new payments, you might be considering negotiating to close the card account with your issuer. But you might also be able to pay off your debt with a balance transfer credit card or personal loan. These options might offer a more manageable way of paying off your debt.

Downgrade your card to avoid an annual fee

If you’re paying an annual fee on a card you don’t use, you could ask your credit card company if it can keep the account open while downgrading you to another card with no annual fee.

Next steps

By now you should hopefully have a good idea if canceling a credit card is the best path for you. Remember that if you currently rely on your credit card for common expenses, canceling a card could prompt you to change many of your habits — and could affect your credit history and credit score.

On the other hand, you might have already decided you prefer to pay with a debit card, check or cash. You also may no longer use the card in question, have already been approved for a better card, or want to avoid paying annual fees. But each of those options comes with its own specific uses and potential issues, too, so consider what the future might look like before acting.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.