How to cancel a credit card
Knowing how to close a credit card is important in order to prevent or minimize damage to your credit score.
Follow these six steps to securely cancel a credit card:
- If you close the card for annual fees, call customer service first. Ask if they will waive the annual fee in order to keep you as a customer. Consider downgrading the card to a version with no annual fee if possible.
- Pay any remaining balance before closing the card. If you can’t, consider transferring the balance to a low-interest credit card or discussing a payment plan with your card issuer.
- Redeem your rewards. If you have any points, cash back, or other rewards left over, redeem them before closing the account so you don’t lose them.
- Update billing information on automatic bill payments or recurring subscriptions. This will prevent attempts to debit your card after it is closed.
- Call your credit card issuer and request cancellation of your credit card. Confirm with them that your balance is zero before closing your account.
- Destroy the closed credit card by shredding or cutting it up.
Does canceling a credit card hurt your credit score?
Yes, canceling a credit card can hurt your credit score. The amount that it reduces your score depends on your situation.
If you have high balances on other cards – or if your credit history is fairly recent – you might want to think twice before closing a card. Generally, if you have a long credit history or low balances on other credit cards, you can cancel a card without worry.
Here’s why: Your score is good when you have older credit accounts. So if you have to close a credit card, try not to close your oldest card. And if your credit score is still brand new, it might not be a good time to cancel a credit account. The average age of all your credit accounts and the age of your oldest account together make up about 15% of your FICO® score.
Your current balances also influence your score. The more you owe to credit companies, the lower your score will be. This is called your credit utilization rate – it is responsible for 30% of your FICO® score. You can calculate your credit utilization rate by adding up the amount you owe on all of your credit cards, then dividing it by your total credit limit on all credit cards. Ideally, it’s good to keep your credit usage below 30%.
Say your credit card balances are $ 5,000 and all of your credit limits are $ 20,000. Your credit utilization rate is your balances ($ 5,000) divided by your limits ($ 20,000), or 25%. Now let’s say you close a credit card with a limit of $ 10,000. When you close this card, your overall credit limit drops from $ 20,000 to $ 10,000. Your credit usage is still your balances ($ 5,000) divided by your limits ($ 10,000), but now your credit usage rate is up to 50%. The higher usage rate will likely damage your score until those balances are paid off.
Is It Bad To Close A Credit Card?
It doesn’t necessarily hurt to close a credit card account. While closing a credit card can hurt your credit score, sometimes it’s the right choice. Closing a credit card the right way can help prevent or minimize damage to your credit score.
Why close a credit card
You spend too much: If having access to a credit card causes you to spend more than you normally would, especially if it puts you in debt, you should consider closing your credit card. Keep in mind, however, that regular use of a credit card is essential to building and maintaining good credit. Consider leaving your credit card at home and using it to pay a small bill or two each month.
Your interest rate goes up: If you are currently paying off a card balance and you receive a notice that your interest rate is increasing, the Credit Cards Act 2009 gives you the right to opt out of that increase, as long as it is not due to late payment. This will likely cause your account to be closed, but you can continue to pay your balance at the current rate.
It charges an annual fee and the perks don’t make up for it: If your credit card charges an annual fee, make sure you earn enough rewards and perks to offset those fees. Otherwise, you’ll want to close the card or downgrade to a version with no annual fee if possible.
It does not match your consumption habits: The best credit cards come with generous rewards and benefits programs that match your spending habits and maximize your savings. If yours doesn’t, you might want to consider purchasing one that does. However, as long as it doesn’t charge an annual fee, leaving it open won’t hurt – and may even help – your score.
Why you shouldn’t cancel a credit card
You have paid your balance: Reducing your balance to $ 0 is cause for celebration, but it doesn’t have to be a reason to close your credit card. As long as you can be trusted not to go into debt again, it’s usually best to leave the card open. This will help your credit score by keeping your credit usage and the average age of accounts intact.
You don’t use it often: Closing unused credit cards might seem like an obvious decision, but as noted above, leaving it open may be better for your credit. As long as your card doesn’t charge an annual fee, it’s often a good idea to leave it open.
You think you have too many credit cards: It’s a myth that having a lot of credit cards is bad for your credit. In fact, as long as you use them responsibly, it’s better to have multiple credit cards for your credit than to have just one. Just make sure you can handle multiple payment due dates and don’t apply for too many cards in a short period of time,
You want another credit card: If you find a credit card offer that better suits your needs and you qualify for it, don’t hesitate and apply. You don’t need to close your old credit card just because you have a new one.
Alternatives to canceling a credit card