Before you cancel your credit card, it’s crucial to understand the potential effects. Closing a credit card can impact your credit utilization ratio and the average age of your credit accounts, potentially lowering your credit score. You may also lose rewards points, cash back, or other perks associated with the card. Additionally, a credit card can serve as a financial safety net in emergencies, so consider whether you’re comfortable losing that backup option.
If you’re thinking about canceling due to high fees or lack of use, consider some alternatives before taking the final step. You might be able to downgrade to a no-fee card within the same issuer’s lineup. Alternatively, try negotiating better terms with your card issuer—they may be willing to waive fees or offer better rewards to keep you as a customer. If these options don’t work, you could keep the card but use it sparingly to maintain the account and its positive impact on your credit history.
When Should You Close (or Not Close) a Credit Card?
Before proceeding with cancellation, think about these three important questions:
Does it charge an annual fee? If you’re paying a fee for benefits you don’t use (like premium rewards, insurance coverage, or travel upgrades), it might not be worth keeping the card. Consider whether the card’s benefits outweigh its costs.
Does it have a high credit limit? Closing a card with a high credit limit can significantly reduce your overall credit limit, negatively affecting your credit utilization ratio. If you close a card but have balances on other cards, you might see your score dip by as much as 50 points. A high credit limit isn’t a reason not to close your card, but you need to be strategic about it.
Is it your oldest credit card? Your oldest card boosts your credit score by increasing the overall age of your credit history. Closing it might drop your score by up to 20 points. Consider keeping your oldest card active if possible, especially if it doesn’t have an annual fee.
Steps to Cancel Your Credit Card
If you’ve weighed your options and still want to proceed with cancellation, follow these steps to do it the smart way:
Pay off your balance: Ensure your card has a zero balance before canceling. If you want to get rid of your card ASAP but can’t pay the whole balance at once, consider transferring the balance to a card that has a 0% balance transfer offer.
Redeem your rewards: Use or transfer any remaining rewards points or cash back. If you have several cards that use the same rewards redemption portal (like multiple Chase or Capital One cards), you may be able to skip this step. However, double-check the rules of your card issuer before closing your card.
Cancel automatic payments: Update any recurring charges linked to the card to ensure you don’t miss any important payments.
Contact the issuer: Call the number on the back of your card to initiate the cancellation process. Confirm with the agent that your balance is zero. If you have a high credit limit and don’t want to affect your credit utilization rate, ask if you can transfer your limit to another card with the same issuer.
Request written confirmation: Ask for a written statement confirming the account closure and zero balance. Your card issuer should send you a letter confirming your account has been closed. If you don’t get one within a week or two, follow up with your card issuer.
Follow up: Check your credit report after a few weeks to ensure the account is reported as “closed by consumer.” It can take up to 45 days for your card closure to be reported to the credit bureaus, which means it could take almost two months for you to see any changes to your score.
Dispose of the card: Cut up the physical card, ensuring you destroy the chip and magnetic strip. If your card is metal, don’t cut it up! Contact your issuer for proper disposal instructions.
Additional Safety Measures
To protect yourself further, keep records of your cancellation request and confirmation. Store your cancellation confirmation on file for a few years, just in case you need to reference it. Continue to monitor your credit report for any unexpected activity. Be prepared for a potential counter-offer from the card issuer and decide in advance if you’re willing to negotiate.
By following these steps, you can cancel your credit card in a way that minimizes negative impacts on your financial health and protects your personal information. Remember, canceling a credit card is a significant financial decision, so take the time to consider all your options before proceeding. If your situation warrants a closure, you can repeat these steps as needed.