How to Cancel a Credit Card Without Hurting Your Score

With banks, grocery stores, credit unions, and department stores all offering lines of credit, it can be all too easy to have a collection of credit cards. When each card offers unique travel and cash back rewards designed to motivate you to spend, the situation can quickly get out of control. The average American cardholder has 3.7 credit cards, so if you find you have too much plastic in your pocket, you may be wondering how to cancel a credit card to get control of your finances.

First, it is essential to consider if canceling your credit card if the right choice for you. Canceling your credit card is a simple solution to a complex problem, and there may be repercussions that affect your credit score or ability to qualify for loans. In addition, if you’re like most Americans with an average of $6,375 of credit card debt, you likely have unhealthy spending habits that may cause you to further into debt even if you do cancel a card. Before making a decision, you’ll want to weigh the pros and cons of canceling your credit card and make sure you’re not deactivating your credit card for the wrong reasons.

If you feel confident about your decision to cancel your credit card and you have talked to a financial advisor, keep reading below to learn how to cancel a credit it card:

1. Consider the Timing and Impact on Your Credit

When you close a credit card, your credit score may be affected. It's helpful to understand that a part of how your credit score is calculated is the length of your accounts and your credit utilization. Your score goes up the more unused credit you have available compared to the debt you have used. When you cancel a card, your available credit goes down, worsening your credit utilization ratio. While this may help you avoid the temptation to overspend or help simplify your bills, you should still keep in mind that this may make it more difficult for you to find financing on large purchases like a car or home. Talk to a financial advisor if you are uncertain about whether you should cancel your card.

2. Pay Down the Balance

While you can ask to have a credit card closed to new transactions, the account will not fully close until the entire balance is paid. If you have multiple cards to pay each month, some experts recommend the snowball method. With this tactic, you focus on paying off the smallest debts first and then use the extra money to tackle larger bills.

3. Remember to Redeem Any Rewards

Rewards on cards that offer perks like travel credit or cash back don’t have to be forfeited entirely when you close your card. Look at the requirements on your rewards to see if there are any thresholds you are close to reaching. You may only be a few miles from a plane ticket or a couple of dollars from the cashout minimum. Talk to your credit card company as some offer a statement credit in exchange for your accumulated miles.

4. Contact Your Bank to Cancel

Call or go into your credit provider and let them know that you wish to cancel your credit card. You’ll need to confirm that your balance is actually zero, as there is sometimes a small residual interest that may accrue after your last bill. Once you have ensured you don’t owe anything, closing your account may take some effort, and the person you speak to may even offer you a new rate or rewards in an effort to keep you.

5. Don’t Accept Their Offers

Remember that credit card companies expect to make their money back on any bonuses they offer in the form of interest paid in the future. The best reason to keep a credit card is to build credit, as they aren’t designed to save you money primarily. A Scenario where you might want to consider their offers may be if you have multiple cards, and the new offer from the credit card company makes keeping the card open a better deal than another card.

6. Write a Letter for Your Records

To cover all your bases, it can be a good idea to have a form of written proof that you requested the account be closed and when you closed it. Because your credit score is so important and hard to build, having written proof leaves little room for error that could have negative repercussions. You may even enclose a check for the last payment on the card. Send the letter via certified mail or request a receipt to prove that the bank received it.

7. Check Your Credit Report to Ensure the Account Is Closed

You may want to get a free copy of your credit report to make sure the account is marked closed. It will take seven years for any late payments or delinquencies associated with that account to disappear from a credit report. The good news is that good credit history will remain on your credit report longer. A closed account that was in good standing will remain on your credit report for ten years. This will help shift the majority of your credit information to positive as time passes.

Can Canceling Your Card Hurt Your Credit Score?

It is possible that canceling your credit card may lower your credit score. Because credit is essential for establishing financial responsibility to lenders, renters, and creditors,  maintaining a good credit score is essential. A good credit score is generally considered to be anything above 700. If you have a good credit score, you may not need to worry as much about closing a card. However, many factors affect a credit card score and everyone’s financial situation is different, so consider the length of your account history, your credit utilization ratio, and any upcoming purchases that will require a good score before canceling a card. Here’s a more in-depth list of things to consider before canceling your credit card.

 

The Pros of Closing a Credit Card

Prevents Extra Expenses

Many people cancel their credit cards to keep themselves from spending excessively. If you know that you’re more likely to spend up to your limit just because you can, it may be best to remove the temptation altogether to prevent yourself from accruing unmanageable debt.

Decreases Your Chances of Identity Theft

While only 6.7 percent of Americans will fall victim to identity theft each year, your personal risk increases with additional cards. Additionally, if some of your cards go unused and unchecked, it may take longer for you to recognize the theft, enabling more damage to be done.

Keeps Payment History

When you close your account it won’t be completely wiped from your credit records. While negative credit stays on your report for seven years, an account closed in good standing can benefit your credit history and add to the variety of sources on your report for ten years. In this case, the closed card will continue to provide some benefits even after you cancel it, with none of the risks.

Simplifies Your Finances

If you struggle to remember what bill is due when or have trouble calculating how much you’ll be paying in interest and want to uncomplicate things, you may benefit from canceling a credit card. Consider trying existing tools that can help you manage your cards and bills and talk with a financial advisor before canceling.

The Cons of Closing a Credit Card

Increases Your Credit Utilization

Your credit utilization ratio is determined by the amount of available credit you are currently using across all lines of credit. If your account has low to no balance and you cancel your card, the credit available to you will decrease. If you have a lot of debt on other cards, this can have a larger negative impact.

Shortens Credit History

The length of your account history may play an important role in establishing your creditworthiness. Even if your accounts are all in good standing and you’ve never missed a payment, having only a short track record of this may not indicate much. Therefore, it can be a bad idea to cancel your oldest account because the shortened credit history may affect your credit score.

Decreases Variety of Credit

There are three main types of credit: revolving credit, installment credit, and open credit. Respectively, these are associated with credit cards, loans, and charge cards. However, most people don’t encounter charge cards, which are cards that cannot carry a balance month to month. Your credit score can be positively impacted by having a combination of installment and revolving credit, so if you cancel your last credit card, you may decrease your variety of credit and credit score.

Terminates Access to Benefits

If you’re a frequent traveler or shopper, the miles and cash back options offered by some cards may be very attractive. While these benefits are usually not a good reason alone to keep a card around, you may want to factor in the value you place on those rewards when considering closing a card.

While it may sometimes be appealing to cut up your cards and cancel your accounts, you should weigh how this may impact your credit score before doing so. If you have a card you’re not using, maintain other types of credit, have a low utilization ratio, and are not planning on applying for any loans soon, it may be a good idea to cancel your card. Understanding the factors that affect your credit score may help you make smarter financial decisions and gain greater control of your finances.