Closing a credit card involves more strategy than you might think, as it can have a negative impact on your credit score — especially if you don’t do it properly.
If you’re thinking about how to cancel your credit card, you need to follow a step-by-step process to minimize the damage and keep your credit score in its best possible standing.
What’s involved in closing a credit card?
You’ll need to take the following steps before you call your issuer to close your credit card:
- Pay off your balance in full. The balance needs to be at $0 before the issuer cancels your card.
- Make sure to cancel any recurring payments you have set up to be charged to your card, such as streaming services or gym memberships. If you don’t, you might keep paying without realizing it.
- Redeem any points so you won’t lose them. You may also be able to transfer them to another account, like a frequent flyer points program.
Note: If you’re cancelling your credit card because the annual fee is too high, contact your issuer and ask about switching to a credit card with a lower annual fee. This is called a product change, and it won’t have the same negative impact on your credit history since the issuer might not need to open a new line of credit, close your current account, or run a hard credit inquiry.
Pros and cons of cancelling a credit card
- Can prevent you from accumulating more debt
- Fewer bills to keep track of and pay
- It cuts down on your costs (no more annual fee)
- Can impact your credit score
- You lose valuable credit space in case of an emergency
- It may mean you lose your perks/rewards
How to cancel a credit card
If you decide to cancel your credit card and have completed the steps above, your next move is to call the credit card issuer. You’ll find the number on the back of the credit card. The representative will try to dissuade you from cancelling, but it’s your choice.
Make sure to ask them to leave a note that your account is being closed at your request. This will ensure it doesn’t look like the account was closed by default.
Write down the time, date, and name of the representative for your own records in case of a computer glitch. Ask for written confirmation that your account is closed. Once you receive it, cut up your credit card and throw it in the trash.
If you have multiple credit cards to cancel, spread them out. Don’t cancel them all at once because it could look suspicious.
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Will closing a credit card affect my credit score?
Potentially yes, because it impacts three important aspects that make up your credit score.
The longer you’re able to hold onto a credit card (and stay in good standing), the better it looks on your credit history. For this reason, if you do need to cancel a credit card, it’s best to keep your oldest card and cancel a newer one. It’s also important to note that closed accounts stay on your credit history for six years.
Cancelling a credit card means that you are decreasing your overall credit limit, which means your credit utilization will rise. It’s a good idea to keep your utilization under 35% of your total available credit, and the lower, the better. This strategy will help you get approved by lenders and get better loans, mortgages, and other credit rates.
Lenders review the types of credit accounts, including revolving and installment credit, that you manage. Showing that you can handle different kinds of accounts can go a long way in proving that you’re a responsible borrower. If your credit card is the only revolving credit account, you have open, closing it would remove this type of credit from your report.
While these factors count towards your credit score, if you close a credit card properly (as listed above), it shouldn’t have a dramatic impact on your credit score.
Can you close a credit card with a balance?
You cannot completely close a credit card if you still have a balance owing. You need to pay off the balance or transfer it to another credit card.
Can you cancel a debit card?
Yes, and it won’t impact you the same way as cancelling a credit card could. Typically, you only need to cancel a debit card if it is lost or stolen (if this is the case, get in touch with your bank immediately). If you close your bank account, you can just cut up the card and throw it away.
Why was my credit card closed automatically?
There are three possible reasons why your credit card was closed automatically.
- Delinquency, which means you aren’t paying your bills. However, even if your card has been closed, you still owe that money.
- Red flags on your credit report
Credit card providers do not need to notify you before they close your credit card, which is why it’s important to pay on time, use your card, and be in good standing.
Will my credit card be closed for inactivity?
It could be. Inactivity may also lead to fees and a loss of rewards points. Make sure to read your cardholder agreement’s fine print and familiarize yourself with your credit card’s specific rules.