How To Cancel a Credit Card
At first blush, canceling a credit card seems trivial. You just tell the issuer you no longer need the account, and they close it for you.
However, in reality, it’s a bit more complicated than that. Canceling a credit card can adversely affect your credit score, even if credit card debt is the source of your financial problems.
So, the way you go about canceling your credit card makes a big difference. In this post, we discuss how to cancel a credit card safely and why you might want to do it. Read on to learn more.
When To Cancel a Credit Card
There might be some moments in your life where it really makes sense to cancel your credit cards. These include:
- When you are going through separation or divorce. In this instance, it makes sense to cancel any joint cards that you hold with your partner. Angry exes may take it upon themselves to run up large debts on your account. Don’t assume that creditors will let you off the hook for debts your ex-partner incurs, even if court documents say you’re not responsible for them. In many cases, they’ll still come after you for repayment.
- When your credit limit tempts you to spend. Some people find the allure of credit cards too tempting to resist. If they know there is money in their accounts, they can’t help but splurge on cars, vacations, and clothes. If that sounds like you, you could improve your financial situation by closing your credit card account. Canceling your card prevents you from buying things you can’t afford, making it easier to live within your means.
- When your annual fees are too high. Lastly, you may want to close a credit card account because the annual fees are simply too high. If you think you’re paying too much, tell your issuer you’re leaving. In some cases, they may waive your annual fees to keep you as a customer.
How To Cancel a Credit Card in Four Steps
Just going ahead and cutting up your credit card won’t cancel your account. Even if you stop using your card entirely, your balance will remain open, and you may still have to pay fees.
Instead, here’s what you need to do:
Consider How It’ll Affect Your Daily Life
Before you initiate the procedure of closing a credit card account, think about how it’ll affect your daily life.
For example, if you use it for common expenses, such as buying food at the grocery store or filling up with gas, you’ll need an alternative. In most cases, a debit card will suffice.
Note that carrying a large amount of cash around with you is usually not advisable, particularly if you live or travel through dangerous areas.
Therefore, you’ll need to consider whether getting rid of your card is a security risk.
Consider Whether You Can Afford the Hit to Your Credit Score
Credit bureaus regularly collect data on your use of credit cards to determine your overall creditworthiness. It’s one of the metrics they use to rate you, alongside whether you pay your bills on time.
Therefore, even if you make all your payments on time, eliminating your credit card entirely can have an unwanted adverse effect on your credit score, making it more expensive to take out loans and mortgages.
Generally, the longer your active credit history, the better your FICO score. Lenders can see that you have a track record of managing your money well over time and are more willing to lend to you.
When you cancel your credit card, you deprive them of that information. Even if you open a new one, it takes time to rebuild your credit activity, making lenders less confident to lend you money.
Moreover, closing a credit card can impact your credit utilization ratio.
Most creditors want borrowers who have a diverse credit mix. Ideally, they want to lend to people who have both installment credit (such as repayments on a car loan) and revolving credit (such as credit card balance repayments).
However, if you close your credit card and don’t open a new account, you could wind up with no revolving credit on your report at all. If that happens, creditors may be less willing to work with you.
Explore Alternatives to Canceling Your Credit Card
A closed credit card is the best option in some situations, but not all. In fact, there are several alternatives to closing your account that might work out better.
Hide Your Card Somewhere
The first option is to put your card away somewhere where you can’t easily access it. You might put it in your filing cabinet or store it in a lockbox. This way, you can’t just reach into your purse or wallet and start using it while shopping, massively reducing temptation.
Downgrade Your Card
Another option is to downgrade your service. Top-of-the-line credit cards often force you to pay a high annual fee for the services they offer. However, if you don’t use them much, you might be spending money unnecessarily.
If that’s the case, consider downgrading your card. This eliminates annual fees while also letting you maintain your active credit history.
Negotiate Lower Interest Rates With the Issuer
Lastly, you might want to consider negotiating lower rates with the issuer. See if they’d be willing to cut the price of borrowing if it meant that you stayed with them for the foreseeable future.
Cancel Your Card
If none of the above alternatives work for you and you still want to go ahead and cancel your credit card, here’s what to do:
- Check that there are no outstanding or unused rewards on your account.
- Pay off all your credit cards in full so that they each show $0 balances.
- Contact your card issuer and get them to confirm that the balance on your account is $0 on their systems.
- Tell your card issuer you’d like to cancel your account.
- Send your card issuer a certified letter asking for written confirmation from them that your account balance is $0 and for a closed account statement to be sent to your home address.
- Find and check your credit reports after 30 and 45 days to make sure that the account is closed and that the balance at the time of closure was $0.
- If there are any incorrect terms on your reports, dispute them with credit bureaus.
It’s worth pointing out that even if you cancel a rewards credit card (or just a regular card), your credit information will remain on your credit report for a long time.
In fact, rating agencies can use information from your revolving credit history on a canceled credit card for up to seven years before deleting it.
If you want to keep your credit utilization rate low, make sure that you pay off your credit card balances in full each month.
Generally, if all of your balances are $0 at the end of the month, then you can close an individual card without hurting your score.
Learning how to cancel a credit card is relatively straightforward. However, assessing the impact it might have on your credit score is more challenging.
Initially, the effects should be small, particularly if you close your card with a $0 balance. However, if you don’t have any other credit cards, then eventually, it’ll have a larger effect on your rating, and that might impact the rates you pay for loans and mortgages.
Can I cancel my credit card online?
How you cancel your credit card depends on the issuer. Some allow you to cancel your card online, while others require you to do it over the telephone or send a written request.
Is it worse to cancel a credit card or not use it?
In most cases, it is a good idea to leave your credit card open, even if you are not using it, instead of closing it. While closing a credit card won’t affect your credit score immediately, credit bureaus will eventually stop using the card’s history to generate your credit rating.
Is it better to close a credit card or leave it open with a zero balance?
Generally, the standard advice is to keep unused credit cards with zero balances open. Simply having a form of revolving credit available to you can improve your perceived creditworthiness, boosting your credit score.
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.
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