Table of Content
Key Takeaways
- The first thing you need to do to cancel a credit card is to pay the balance in full. This is because if you cancel the card, but still have a balance on it, this can hurt your credit score.
- Canceling a credit card is simple, all you need to do is to call the bank, or visit the branch and intimate the process. However, before doing that it might be useful to redeem all of the points and other rewards on the card.
- In some cases, canceling a credit card can harm the credit score. This is because, closing a credit card reduces the total amount of available credit, which in turn can push the credit utilization indicator higher, one of the key components of credit score.
Does Canceling A Credit Card Hurt Your Credit?
Closing a credit card can have an impact on your credit score, so it's important to consider the potential impact before closing an account.
Closing an older credit card, particularly one with a long history of on-time payments, can shorten your credit history and negatively affect your credit utilization ratio, while closing a newly opened account can reduce the average age of your accounts.
Before closing a card, weigh the benefits and drawbacks and consider other options, such as reducing the credit limit or simply not using the card, to manage your credit and finances.
Can I Close A Credit Card With A Balance?
Yes, you can close a credit card with a balance. However, it's recommended to pay off the balance before closing the card, as having a balance on a closed credit card can hurt your credit score.
If you are unable to pay off the balance before closing the card, you will need to make arrangements to continue making payments on the balance. Your credit card issuer will typically provide information on how to make payments and may offer different options for paying off the balance, such as a payment plan or a transfer to a different card.
Overall, before closing a credit card, it's a good idea to carefully consider the impact on your credit score and to make a plan for paying off any remaining balance.
How To Close A Credit Card In 4 Steps
Here are the main steps to quickly cancel your credit card account:
1. Pay off Your Balance
You can close your card anytime – even if you still have an outstanding balance.
However, your credit score may suffer because your total outstanding debt will remain the same while your available credit will decrease. This will cause your credit utilization ration to appear higher. Remember that your credit utilization ratio is the second biggest factor determining your credit score.
Even if you have canceled your credit card, you will have to continue paying every month if you still have a balance until you’ve paid it off. If you can afford it, pay off the balance on the credit card before you close it. This will dilute the impact on your credit score and you’ll have one less debt to pay off every month.
Now, what if you want to pay off your card but you just can’t afford it right now? Well, you can transfer the balance to another credit card.
However, you should pick one without any balance (one that you haven’t been using) or one that can give you a promotional interest rate. You might even find one that can offer zero interest for a certain period, so that can give you time to pay off the balance without having to worry about interest.
2. Redeem Points And Rewards Before Closing
In most companies, you can’t benefit from any points or rewards you’ve worked so hard to get after you've closed your credit card.
So, before you cancel your card, check your rewards balance to see if you can benefit from it significantly. You may try redeeming your rewards as a statement credit so you can reduce your final outstanding balance.
However, note that credit card companies have redemption guidelines, and if you have not yet met their redemption threshold, you may have to forfeit all your points and rewards. For example, your credit card issuer requires you to redeem in increments of $2.5, but you only have $20.
3. Contact Your Credit Card Company
Call the customer service number on the back of your credit card or log in to your online account to request that the card be closed.
You may also be able to submit a request in writing or online under your account.
Whether you contact by phone or online, have your account information ready and request that the card be closed. The customer service representative may ask why you want to close the card and may try to offer you incentives to keep it open.
Credit Card Company | Customer Service Number |
|---|---|
Chase | 1-302-594-8200 |
Capital One | 1-877-383-4802
|
Bank of America | 1-757-677-4701 |
Citibank | 1-800-950-5114
|
Wells Fargo | 1-800-642-4720 |
American Express | 1-800-528-4800
|
Discover | 1-800-347-2683 |
US Bank | 1-800-285-8585
|
Your Issuer Will Try To Convince You To Stay
Card issuers just hate losing accounts so the representative who will take your call will try to convince you to change your mind. He will probably remind you of the many benefits of having a card and might go to the extent of offering you better terms.
You may consider the offer only if it answers your concerns with your credit card. To formalize your request, the issuer may send you a letter or an email that requires a response from you before they close your account.
You do not need to send a certified letter to the card company for this purpose unless the cancellation is due to a divorce proceeding and the written confirmation will form part of the documentation.
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4. Verify Account Closure
After your request has been processed, you should receive confirmation that the account has been closed. It's important to verify this by checking your credit report to ensure that the account is listed as closed and that there are no outstanding charges.
If you find any errors or discrepancies, contact the issuer immediately to resolve them. You may also want to keep a record of the closure for your records.
What If I Don't Use My Card But Need To Keep It Open?
Here are some alternatives to closing a credit card:
Leave the card open but don't use it: You can keep the card open but avoid using it, which can help you maintain a longer credit history and keep your credit utilization in check. If the card you want to close has no annual fee but you’re not actually using it, you can keep the account open but disable the card by cutting it up or punching a hole through it.
Transfer the balance to a different card: If you have a balance on the card you want to close, you may be able to transfer it to another card with a lower interest rate or a better rewards program. Then, you might need to make a small purchase once a year to keep it active, so buy something online where you don’t have to present the physical card.
Use it only for small, regular purchases: Another alternative is to use the card only for small, regular purchases and pay off the balance in full each month. This can help you build a positive payment history and maintain a good credit score.
These alternatives can help you manage your credit and finances without closing a credit card, which can have a negative impact on your credit score.
Things To Consider When Closing A Credit Card
As we said, there’s a phalanx of reasons why people would want to cancel their cards. If you’re canceling them just to get things out of your bulky wallet, remember the following:
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Credit Score Impact
Before you pick up the phone to ask your card issuer to close your account, you need to consider whether that card will impact your credit score. Closing a card is not ‘erasing’ your past records so it does not remove them from your credit report nor does it delete any associated payment history from your report.
If you were hoping that closing your credit card will wipe out your history of late payments, you’re out of luck. Negative payment histories will haunt your report for at least seven years.
You should try to bring your account back into a good status so they can factor the positive payment status into your credit score. If you eventually decide to close it, the positive status will stay on your report for around 10 more years. If you close your account with a past due status, it will linger in the report for seven years.
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Consider Age of Credit
The age of your credit accounts has an impact on your credit scores.
Here’s how it works: the longer credit history you have, the better it is. So, if you cancel an account that you’ve enjoyed for a long time, it will eventually fall off from your credit report. It will also pull down the average age of your accounts. That can affect your credit scores negatively.
Before you close an account that you had for a long time, think it through if you really need to. If you’re not using it and wants to avoid the temptation to use it on a whim, leave it in a drawer at home.
Having said that, consider using the card to make one small purchase each year that you can pay off immediately, so the card company doesn’t cancel it automatically due to dormancy or absence of activity.
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Cancelling A Card Impacts Credit Utilization Ratio
Your credit utilization ratio largely affects your credit score. The ratio is the amount of credit you use on a regular basis taken in relation to the amount of credit available to you.
This chart created with Experian data shows that those with an average to good credit score have an average credit utilization ratio of the optimum 33%. This ratio drops significantly for those with very good and excellent scores.
At the other end of the scale, the chart shows that those with poor credit scores typically have a very high credit utilization ratio, with an average of 73%. This will be a massive factor in lending decisions for those in this group.
So, when you close a credit account, you are decreasing the amount of credit that is available to you. The impact of this is that it will increase your credit utilization rate. For example, you have a total credit that’s available to your cards for a total of $20,000 and you normally spend about $4,000 per month.
In this case, your credit utilization ratio is $4,000/$2000 or 20%. Let’s say you cancel a credit card that has a limit of $8,000 which will bring down your total available credit to $12,000. If you continue to spend the same amount, your credit utilization ratio will dramatically change.
So, $4,000/$12,000, your credit utilization ratio will go up to 33%. If you want to have a good credit utilization score, try to keep it under 30%. If you can manage 10%, all the more advantageous for your score.
I Want To Close Because Of The Annual Fee. Is It OK?
It is a good move to cancel a credit card that keeps charging you an annual fee when you don’t use it much and you’re not getting any benefit in terms of rewards or other perks.If the annual fee is the only reason why you want to close the card, you have other options.
You can call your card issuer and request for a waiver of the annual fee or at least convert your card into another card product that doesn’t charge an annual fee. This way, you soften any hit on your credit score if you decide to cancel the credit card altogether.
But if you want to close your card just because you think they should not charge you an annual fee in the first place, call your card company first and try to see if you could come to a win-win arrangement.
I Want To Close Because Of The Annual Fee. Is It OK?
Canceling a credit card is usually a bad idea. Nevertheless, there are some circumstances in which a card cancellation could be in your best interest. Here are three.
- Fees – if your card issuer charges you a high annual fee for an account you don’t use, cancellation might be warranted. However, if you receive benefits from the account that outweigh the annual fee, such as travel credits and perks, it might be worth the cost.
- Healthier Money Habits- some people find the temptation to use credit cards too much to resist. And while this might be a valid reason to close a card for some, there are other ways you can try to curb overspending without sacrificing your credit score.
- Divorce – It’s best to close joint credit card accounts during a separation or divorce. As a joint card holder, you’ll be liable for any past or future charges made on the account. It’s not uncommon for an angry ex to run up excessive charges on a joint card out of spite.
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Cancelling a Credit Card - FAQs
Most card issuers allow you to cancel a credit card with a balance, but you will need to make provisions to pay any outstanding debt.
If your credit card has an annual fee, it may reach a point where it is not economically viable to keep the account open. It is possible to cancel the account before the next annual fee is due, but you will need to check the cut off date to do this.
Most card issuers charge the annual fee on the anniversary date of the account opening, so you will have a grace period where you can cancel the card before another annual fee is applied.
These days many credit card issuers have online support, which allows you to perform most of your account management. This may include canceling your credit card. However, this will depend on your provider. Some providers still require that you call a customer support line to complete the account closure, while others allow you to fully complete the process online.
If you’re unsure whether you can cancel your credit card online, check on your card provider’s website.
