How to cancel a credit card with step-by-step instructions
January 16, 2024
If you have a credit card that’s leaving you with more burdens than benefits, you might be tempted to cancel and move on. But canceling a card comes with its own set of challenges.
Before you make a decision, it’s important to understand the consequences of canceling. Learning how to cancel a credit card is about more than cutting off a payment method; it's about strategically navigating your finances to maintain good credit health.
What happens when you cancel a credit card?
Canceling a credit card can have real effects on your financial well-being. When you cancel a card, you're taking away a line of credit from your available credit limit — the maximum amount you can borrow from all your accounts combined. This impacts your utilization rate, which is the percentage of your total limit that you use making purchases with your credit cards.
If your spending stays the same but your credit limit drops, your utilization rate will go up. Having a higher utilization rate signals to lenders that you might have more difficulty paying back what you owe, thus decreasing your credit score.
Closing a credit card, especially a long-standing one, can also shorten your average credit history length. This could hurt your credit score because lenders often view a shorter credit history as a sign of less experience managing credit. Maintaining a strong credit history helps lenders decide if you're good with credit before granting a loan, and reducing this timeframe can affect your ability to obtain financing.
Does canceling a credit card hurt your credit?
When you cancel a credit card, if it increases your utilization rate or shortens your credit history, it will negatively affect your credit score.
And, if your credit card issuer reports your account closure to the major credit bureaus (agencies that collect and maintain information for credit reports) and fails to mention that you chose to close it, it might appear as though they closed it, which can have a negative impact.
The fallout isn’t always so severe. Closing one card might have little effect if you have several cards and a solid credit history. In some cases, it might be a wise move to avoid high card fees or simplify your finances. Ultimately, the impact on your credit score varies based on your total credit, debt levels, and the age of your accounts, so it's important to consider these factors before deciding to cancel a card.
6 steps for closing a credit card
Knowing when to cancel a credit card and when to keep it can avoid a dip in your credit score. Here are the essential steps to close your credit card:
Clear any outstanding balance: Make sure you’ve made all necessary payments and have no balance on the card. If you close an account with an outstanding balance, you’re still responsible for those payments, and you’ll still accrue normal fees and interest charges until the balance is gone. If you can’t pay off the balance right away and still want to close the card, consider transferring the balance to another card for easier management, especially if the card you’re closing has higher interest rates.
Redeem rewards: If you have outstanding rewards on your card, like cash back, points, or miles, make sure you redeem them before you cancel. Losing hard-earned rewards is like losing money — you don’t want to forfeit them, especially if you have a significant amount. Check if you need to wait to redeem those, like collecting cash back in November, and see if you can wait to close the card until then.
Contact your credit card issuer: Next, you need to contact your card issuer. Use the customer service number listed on the back of your card. When you call, confirm your balance is zero and state your intention to close the account. Keep in mind that the representative might offer incentives to retain your account. You’re welcome to take them if they make it worth keeping the card. If you confirm your decision to cancel, make sure they note the closure as "Closed at the consumer's request." You want your credit history to show that you made the closure, not the credit card company.
Send a written cancellation letter: Following your phone conversation, send a written cancellation letter to your credit card issuer as a backup notification. Include your account number and personal information. Make sure you state your intention to close the account and request that they note the closure as "closed at the consumer's request." Sending this via certified mail adds a layer of assurance and creates a paper trail for your records, making it easier to dispute any incorrect claims on your credit report.
Monitor your credit report: After you complete these steps, you’ll want to check your credit report regularly to ensure the closure is accurately reflected and listed for the correct reasons. If there are discrepancies, like a closure listed as "Closed by the issuer" instead of “Closed at consumer’s request,” promptly contact the credit card company to fix this, as it could have a negative impact on your credit score.
Dispose of your credit card: Finally, once the account is officially closed, safely dispose of your credit card. For plastic cards, shredding or cutting them into small pieces is sufficient. Metal cards may require a specialized disposal method, such as returning them to the issuer for secure destruction. This step prevents unauthorized use and ensures that nobody can steal your credit card numbers.
Consider other choices before closing your credit card
Before you close your credit card, consider some alternatives that may be better for your financial goals and won’t impact your credit score as much:
Use the card for small, regular purchases
One effective strategy to maintain the account without accruing significant debt is to use the card for minor, manageable expenses. This keeps the account active, positively contributing to your credit history, and avoids the potential credit score dip associated with closing an account. Regular, small purchases followed by prompt payments can demonstrate responsible credit management, boosting your creditworthiness.
Upgrade or swap to a different card
When your current card simply isn't meeting your needs anymore, you can contact your issuer to explore better options. They can help you switch to a card with better rewards, lower interest rates, or more suitable benefits. You might want to swap to a virtual credit card with masking capabilities, like IronVest’s virtual cards. And if high annual fees are a concern, you might find a card offering similar advantages without the fee from the same lender. This change allows you to tailor your credit card experience to your current financial situation without closing the account entirely.
Downgrade to avoid annual fees
If your card has become a financial burden due to high annual fees, ask your card issuer about downgrading to a more basic card. This move can reduce or eliminate yearly fees while preserving your credit line and history. Downgrading can be particularly beneficial if you find that the perks associated with a higher-tier card are no longer justifying its cost.
Consider a balance transfer
Making a balance transfer to a card with lower interest rates can make a big difference if high-interest rates are prompting you to cancel your card. This can help you tame accumulating interest, especially if you're carrying a large balance. Many cards offer introductory periods with low or no interest on balance transfers, allowing you to pay down your debt more efficiently.
That said, be mindful of balance transfer fees. The card you transfer your balance to may charge a fee (typically 3%-5% of the transferred amount) for handling that debt. This can still be worthwhile if the new card’s fee and interest rate are lower than your current card’s interest rate, but make sure you can afford to cover that cost. Ultimately, you want to make sure the long-term benefits outweigh the initial costs.
Safeguard your credit with IronVest
Learning the ins and outs of your credit accounts can help you make informed choices that support your financial needs. One effective way to protect your credit cards and avoid the hassle of cancellation is using IronVest's masked cards solution. These digital cards offer an additional layer of security against credit card and debit card fraud, ensuring your card details remain protected. IronVest provides a seamless experience in managing online payments backed by a robust, decentralized infrastructure to safeguard your accounts against financial fraud.
Discover the convenience and security of IronVest for a worry-free digital financial life.
Q: Can you close a credit card with a balance?
A: Yes, but you must still pay off the balance. Closing a card with a balance can accrue interest, making it preferable to pay off the debt first.
Q: Is it bad to cancel a credit card?
A: It can be, particularly if it affects your credit utilization ratio or shortens the length of your credit history. Both can potentially lower your credit score. The impact varies based on your overall credit profile.
Q: Will canceling a credit card stop recurring payments?
A: Yes, canceling a credit card typically stops all recurring charges. Notify merchants and securely update your payment information to avoid missed payment issues.
Q: Can I reopen a closed credit card?
A: It depends on the issuer's policy. Some allow reopening within a certain period, while others don't.