How to Cancel a Credit Card
Before you cancel your credit card, consider all your options, debt strategies and potential credit score impact.
Perhaps you’re in over your head with your debt and now you’re considering canceling your credit card. Or maybe you no longer want to pay high annual fees and want a card that won’t charge you. No matter your reasoning, it’s important to consider the impact closing your card could have on your credit profile, such as lowering your credit score and increasing your credit utilization ratio.
To help prevent this, look into safe ways to cancel your card and research alternatives to pay off debt before you make a decision. After all, you want to ensure that whatever choice you make, it will have a positive effect on your financial future.
Safe Ways to Cancel a Credit Card Without Damaging Your Score
If you’re wondering, “Can I cancel my credit card without it hurting my FICO score and credit history?” The answer is yes, you can. At the very least, you can minimize the damage you do. By taking specific steps, such as paying down the balance on the card, redeeming your rewards and sending a letter to the credit card provider to ensure that the cancelation goes through. Then, you will know that you’ve covered all your bases.
While canceling a card is not ideal because of the potential negative impact it will have on your credit score, if it helps you in the long run, then it could be worth it for you. The following steps can help you safely cancel your card.
Pay off your balance
You’ll need to pay off your balance so that your credit utilization rate doesn’t go up before you cancel your card. The ideal rate is below 30%, which means you’re using less than 30% of the credit available to you. When you close a card, the credit available to you decreases, which means your ratio would go up. The credit utilization ratio is one of the most important factors when it comes to determining your credit score. You’ll want to keep it as low as possible.
Make sure your balance is $0
If you’re thinking, “How do I cancel my credit card permanently?” then making sure your balance is actually at $0 is a crucial step before closing your card for good. Call up the credit card provider and double check your statement to see that you don’t owe anything else. The information you see online may not be accurate due to interest so it’s best to confirm with a representative.
Redeem any rewards
If you have credit card rewards, then you’ll need to use them prior to canceling your card. This means taking trips with your credit card’s accrued miles or converting them into money to make other purchases, for instance. You don’t want to let your miles and points go to waste. If you are only a few points away from some sort of threshold, you may want to consider trying to reach it before closing the card. Or, you may be able to convert your rewards into statement credits to pay down your debt faster.
Do not accept other credit card offers
When you’re on the phone with the credit card provider, they may offer you a different credit card option to keep you as a customer. If you’re already in a lot of debt and you’re trying to get out of it quickly, getting a new card is not going to help. Make sure you decline any offers they tell you about if you are not in a good financial position to accept them.
Send a certified letter
Even if you cancel your card over the phone, you should still send a certified letter in the mail showing that you have canceled your card, and ask the provider to send you back a letter stating that the card is closed and your balance is indeed $0. Then, you can have proof of this just in case something happens, especially when it comes to your credit report and score.
Check your credit score
Once a month or two has passed since you’ve closed your card, check your credit report with the three bureaus, Equifax, Experian and TransUnion, to guarantee that the card is no longer active and your balance on it is $0. If you do see any errors or things that you don’t recognize on your report, then contact the bureaus immediately to correct the misinformation.
Does Canceling a Credit Card Hurt Your Credit Score?
Understanding how credit cards work is essential when you’re considering canceling your card. This choice will affect your credit score, including the major score factors such as utilization rate, credit history and credit mix or the different types of credit you have, such as a card or a loan.
There are steps you can take to prevent negative effects on your score, such as ensuring the card stays on your report. If you do your due diligence and safely close your credit card, then it could have less of an impact on your score. And if you can take a hit in the short run, perhaps you could increase your score again so that you can access new lines of credit when you need them.
Your credit utilization ratio can increase
When you close out a line of credit, your available credit will go down. Therefore, your credit utilization ratio will increase. This is an important factor that determines your credit score.You’ll want to keep it below 30% to have a chance at achieving a higher score.
It may reduce the length of your credit history
If you cancel a card and it’s taken off your credit report, then your credit history length — which is another important score factor — would decrease. Make sure that even if you close out your card, it stays on your report so that the length of your credit history stays the same. A closed credit card that’s in good standing will stay on your credit report for 10 years, so even if it does eventually go away after a decade, you’ll have all that time in the short-term with it on your report.
Your credit mix will be impacted
When considering giving out loans and lines of credit, lenders will make sure you have a solid credit mix — this is, different types of credit — on your report. It shows that you can handle revolving credit, like a credit card, as well as non-revolving credit, like a personal loan. If you close out your card, then you’ll have less of a mix. If this is your only card, you’ll lose out on having any revolving credit on your report.
Too many new credit inquiries may affect you getting new lines of credit.
If you close out a card and then apply for a new one, there’s going to be a hard inquiry on your credit report. This inquiry will temporarily cause your credit score to drop. Too many inquiries on your report could make it harder for you to access new lines of credit. Before applying for a new card, consider if this is a good option, especially if you are not financially well-positioned to pay off credit card debt.
Should You Cancel Your Credit Card?
If you are having trouble with your finances because you’re in debt, then you may want to consider canceling your credit card. Canceling your card could also be better for your overall finances in the long run. It’s a step that’s not as dramatic and not nearly as impactful as bankruptcy – which it could help you avoid if you’re in a dire financial situation. Sometimes, canceling your card is the right thing to do.
When Canceling Your Credit Card Makes Sense
You may consider canceling your credit card when it makes sense for your financial future. When you look at the big picture, this step may be detrimental now, but overall, it could positively impact your credit report and make it easier for you to gain access to new lines of credit later on — perhaps when you need them the most. The following could be reasons you may consider canceling your credit card.
When To Cancel Your Credit Card
- You have a lot of debt. As long as you can pay off your balance before canceling your card, not having this card available to you anymore could help you avoid taking on new debt.
- There’s a high annual fee. Some cards charge you high annual fees, even if you never use them, and you may be tired of paying for them.
- You have a high interest rate. Perhaps you will never be able to pay off your debt because of a high interest rate. Negotiating with the company and closing your card could help. Typically, a debt management counselor can help with this.
- You’re getting divorced. You don’t want to be financially tied to your ex-spouse anymore, so you’d rather just close your card.
When You Should Keep Your Credit Card Open
There are a number of reasons to keep your credit card open because of the negative impact canceling it could have on your credit score. This could snowball and impact you in other areas of your life. Perhaps you are committed to using the card in a responsible way or there is a benefit to having the card in your wallet. The following are some good reasons to keep it open.
When To Keep Your Credit Card Open
- You want your score to stay high. Canceling a card could lower your credit score and you want to ensure it stays as high as possible.
- You need a loan or a new line of credit. Are you applying for a loan or new line of credit soon? Then keeping your card open may be a good idea so that lenders see you have a solid score and no dings on your report.
- You reap in the rewards. You may get a lot back from your credit card when it comes to rewards, and you don’t want to miss out on them. They help you travel the world and save money when you shop, for instance.
- You are responsible with your credit cards. You always pay down your debt and never miss any payments. Canceling your card may not make sense if you’re always responsible.
4 Alternatives to Consider Before Canceling a Credit Card
Canceling a credit card is a big step. Ideally, it should be one of the last considerations. Instead, there are alternative steps that you can pursue before making a decision. They include trying to pay down your debt, negotiating with your credit card issuer, redeeming your rewards for statement credits and more. Taking these steps seriously could prevent you from experiencing negative reports on your credit profile.
Ask for a rate reduction
If you have a high interest rate credit card, call your issuer and see if they’d be open to lowering your interest rate so you can pay off your debt faster.
Pay your debt
Use the snowball or avalanche debt payment methods to lower your balances and increase your credit utilization ratio.
Use rewards as statement credits
If your credit card issuer allows it, convert your rewards into statement credits so that you can pay down your debt quicker.
Avoid cards with annual fees
There are plenty of credit cards out there that don’t charge you annual fees. Only rewards and travel cards will charge these fees.
Canceling a Credit Card FAQ
Want more information on canceling a credit card before you make a decision on whether or not to do it? Then read up on canceling a credit card FAQs to learn everything you need to know.
Expert Insights on Canceling a Credit Card
MoneyGeek spoke with two experts for advice and information on canceling a credit card. Discover what they have and determine if canceling your card is the best decision at this time or if you should consider other options instead.
- What are some good reasons to cancel credit cards?
- If someone doesn't want to cancel their cards, how else can they improve their credit score?
Vice President and Director of Finance & Accounting at Cover Genius
Supervising Attorney at The Bankruptcy Law Center
Want to learn more about canceling a credit card and perhaps about credit cards in general? The following resources can help you stay on track with your credit and ensure that you have a brighter financial future ahead.
- Credit Card Terms 101: Not sure what a specific term means? Learn A-Z what credit card terms and vocabulary means in this comprehensive glossary.
- Guide to Your First Credit Card: Learn how to manage your spending, what card options may be a good fit for you and how to apply in this guide for first-time credit cardholders.
- How Credit Cards Work: Have any questions about how credit cards work? Then this page will help you find out everything you need to know about them.
- The Best Balance Transfer Credit Cards in 2022: Instead of closing your credit card, you can get a balance transfer credit card and gain access to a 0% interest during a promotional period. This will give you more time to pay your debt.
- The Best Rewards Credit Cards of 2022: Find rewards credit cards that may be worth applying to and keeping open. With these, you can reap the benefits of spending on your card.
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