How to Cancel a Credit Card Without Hurting Credit

Sometimes a credit card is no longer appropriate and it is time to consider canceling it. This could be due to a change in life circumstances, a change in the benefits of the card, or any other reason. If you are considering canceling a card, you should consider whether it will affect your credit or whether there are better options, such as downgrading or switching products to another credit card. If you’re still convinced that you want to cancel your card, there are a few steps you can take to get the most out of it.

With banks, grocery stores, credit unions, and department stores all offering off-line credit, collecting credit cards can be very easy. When each card offers unique travel and cashback rewards designed to motivate you to spend, the situation can quickly spiral out of control. The average American cardholder has 3.7 credit cards, so if you see too much plastic in your pocket, you’re wondering how to get rid of a credit card to get control of your finances.

When to cancel a credit card

For some, canceling a credit card can be a relief. Outside of a celebration after digging yourself out of a credit card debt, there are various reasons to cancel a card. Not using a card, wanting to reduce the number of cards you have, not wanting to pay a hefty annual fee, or not switching brand loyalty from one hotel or airline to another is a great reasons to close a credit card account.

Whatever your reason, you will probably wonder what will happen when you take this step. Will it hurt your credit? When do you have to pay your balance? We will look at some of the reasons you can cancel a card and the issues you need to consider before, during, and after the cancellation process.

First of all, it is important to consider whether your credit card is being canceled if it is the right choice for you. Canceling your credit card is a simple solution to a complex problem, and can have repercussions that affect your credit score or ability to qualify for a loan. In addition, if you’re like most Americans with an average credit card debt of 6,375, you probably have an unhealthy spending habit that can put you in more debt even if you cancel the card. Before making a decision, you will want to weigh the advantages and disadvantages of canceling your credit card and make sure you are not deactivating your credit card for the wrong reason.

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

Consider if you really want to cancel your credit card

Even if it is a card that you do not use regularly, there may be some reason to keep a card open. If the card has an annual fee and the benefits do not justify the annual fee, there is no point in continuing to pay the annual fee.

If this sounds like a situation you are in, you have a few options. The first is to call the credit card company to see if it will offer to hold you. Banks and credit card companies spend a lot of money to attract new customers, so these companies are often willing to encourage existing customers to stay.

If you call and say that you plan to cancel, it is possible that you will be offered an annual fee refund or a statement credit, bonus miles or points, or some adjustment to keep your card open. It may be necessary to spend a certain amount of money in a certain period of time similar to earning a welcome bonus. You need to decide if the offer has been made (if an offer is made) to suit your time.

Another option is to downgrade your credit card to another card without an annual fee from the same issuer. This allows you to keep your account and credit line open but does not pay for it. Different banks have different rules and not everyone is allowed to do it — most banks have requirements when a card can be changed and which card can be changed.

Also keep in mind that if you leave a card open but do not use it, the credit card company may cancel the card. To avoid this, consider placing a small charge on the card periodically.

1. Consider time and impact on your credit

Your credit score may be affected when you close a credit card. It helps to understand that part of how your credit score is calculated is the length of your account and your credit usage. The more unused credit your score reaches you than the loan you used. When you cancel a card, your available credit decreases, worsening your credit usage ratio. While this can help you avoid the temptation to incur extra costs or make your bills easier, you should keep in mind that it can make it harder for you to find financing for a big purchase like a car or a house. If you are unsure whether your card should be canceled, talk to a financial advisor.

2. Make balance payment

When you ask to close a credit card for a new transaction, the account will not close completely until the full balance is paid. If you have more than one card to pay each month, some experts recommend the Snowball method. With this strategy, you first focus on repaying the smallest debt and then using the extra money to deal with the larger bills.

3. Remember to redeem any prize

Rewards on cards that offer benefits such as travel credit or cashback do not have to be completely forfeited when you close your card. Check your reward requirements to see if there are any thresholds near your reach. You can stay just a few miles away from a plane ticket or cash out a minimum of a few dollars. Talk to your credit card company because some people offer a statement credit in exchange for the miles you save.

4. Contact your bank to cancel

Call or go to your credit provider and let them know you want to cancel your credit card. You need to make sure that your balance is actually zero, as there may sometimes be a small residual interest accrued after your last bill. Once you are sure you have no debt, it may take some effort to close your account, and the person you talk to may offer you a new rate or reward for trying to keep you.

5. Do not accept their offers

Keep in mind that credit card companies expect to get their money back on any bonuses they offer in the form of future interest payments. The best reason to have a credit card is to create credit because they weren’t designed to save you money in the first place. A scenario where you might want to consider their offers if you have multiple cards, and the credit card company’s new offer makes a better deal to keep the card open than the other cards.

6. Write a letter for your record

To cover all of your bases, it might be a good idea to have written proof that you requested the closure of the account and when you closed it. Because your credit score is very important and difficult to create, there is little room for error if there is written evidence that can lead to negative feedback. You can even attach a check for the last payment to the card. Send the letter by certified mail or request a receipt to prove that the bank has received it.

7. Check your credit report to make sure the account is closed

You may want to get a free copy of your credit report to confirm that the account has been marked closed. It will take seven years for the credit report to disappear. The good news is that good credit history will no longer be in your credit report. For ten years your credit report will be in a closed account which was previously in a good position. This will help you to transfer most of your credit information positively over time.

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 the financial responsibility of lenders, tenants and creditors, maintaining a good credit score is essential. A good credit score is generally considered to be something above 700 If you have a good credit score, you don’t have to worry about closing a card However, there are many factors that affect a credit card score and each financial situation is different, so consider the length of your account history, the ratio of your credit usage and the need for a good score before canceling a card for any upcoming purchases. Here’s a more in-depth list of things to consider before canceling your credit card

Get your free credit score

Using the Mint app, you can find your credit score in minutes.

Is Credit Card Closure Bad?

Closing a credit card account is not necessarily a bad thing. Closing a credit card can damage your credit score, sometimes it’s the right choice. Closing a credit card in the right way can help you prevent or reduce the loss of your credit score.

Why You Should Not Cancel A Credit Card

You’ve paid your balance: It’s a celebration to bring your balance down to $ 0, but it’s not a reason to close your credit card. As long as you can be trusted not to go into debt again, it is usually best to leave the card open. This will help your credit score while maintaining your credit usage and the average age of the account.

You don’t use it often: Closing an unused credit card may seem like an obvious step, but as discussed above, keeping it open may be better for your credit. Unless your card charges an annual fee, it’s a good idea to keep it open.

You think you have too many credit cards: It’s a myth that having too many credit cards is bad for your credit. In fact, as long as you use them responsibly, having more than one credit card is better for your credit. Just make sure you can handle multiple payment deadlines and don’t apply for too many cards in too short a time,

If You Want a Different Credit Card: If you get a credit card offer that best suits your needs and you qualify for it, go ahead and apply. You don’t have to close your old credit card because you got a new one

Option to cancel a credit card

If you spend extra, consider …
Leave the card at home so you have it in case of an emergency. You could consider (literally!) Storing the card in a block of ice so you can’t use it emotionally, or ask family members to hide it in a safe place.

If it has an annual fee, consider …
Downgrading to no-annual-fee version. This will keep your credit history intact while avoiding paying fees for cards you don’t use.

If it has a high-interest rate, consider …
Ask your credit card issuer for a lower interest rate, or transfer the balance to a card with a lower interest rate.

If this doesn’t match your spending habits, consider …
If there is no annual fee, leave it open, and open another credit card that better suits your spending habits.

If you rarely use it, consider …
If it does not have an annual fee, leave it open and keep one or two small, recurring bills so that it does not close for inactivity.

If you want a better reward, consider …
Ask about a product change. You may be able to exchange the card for a different card that offers a more appropriate reward for your spending habits and you will not lose your account history.

Does canceling a credit card hurt your credit score?

Yes, canceling a credit card can damage your credit score. How much it lowers your score depends on your situation.

If you carry a high balance on other cards – or your credit history is fairly recent – you may think twice about closing one card. Generally, if you have a long credit history or a low balance on another credit card, you can cancel a card without worry.

Here’s why: If you have an old credit account, your score benefits. but try not to close your old card if you have to close a credit card. And if your credit score is still brand new, this may not be the right time to cancel a credit account. The average age of all your credit accounts and the age of your old account together make up about 15% of your FICO score.

Your current balance also affects your score. The more credit companies you owe, the lower your score will be. This is called your credit usage rate – it is responsible for 30% of your FICO® score. You can calculate your credit usage rate by adding up how much you owe across all of your credit cards, then dividing your total credit limit across all credit cards. Ideally, it is best to keep your credit usage below 30%.

Let’s imagine your credit card balance adds up to $ 5,000 and all your credit limits add up to $ 20,000. Your credit usage rate is your balance ($ 5,000) divided by your limit ($ 20,000), or 25%. Now, suppose you closed a credit card with a limit of $ 10,000 When you close that card, your overall credit limit drops from $ 20,000 to $ 10,000. Your credit usage still divides your balance ($ 5,000) by your limit ($ 10,000), but now your credit usage ratio has increased to 50%. A higher usage ratio will likely hurt your score until those balances are paid.

Stop using the card before canceling

Be sure to stop using before canceling the card, and ideally, allow the statement to stop. You’re rewarded for the amount you spend, so make sure you collect the cards before you cancel. Most issuers cancel the prize balance after or after the account is closed, although the exact details vary according to the type of reward received.

Pay your balance in full

Before canceling your credit card, pay your balance in full.

If your card has an annual fee, there is usually no reason to cancel early. Instead, wait until the annual fee is posted to your card account or just before. Most banks and credit card companies have a grace period of at least 30 days where you can cancel the card and still get an annual fee refund. Operating this way, you have the option to call a potential hold offer after your annual fee post

If your card has zero balance and your annual fee is refunded, you may end up with a negative balance. If this happens, the credit card company will send you a check in the mail. Make sure to make a note of it and follow up to make sure you get a refund check

Let authorized users know

If you have an authorized user or employee card on a business credit card, let those cardholders know that you plan to close the account. Collect cards or instruct authorized users to dispose of cards

Cancel recurring payments

Be sure to review the previous statement and check the recurring charge. You should contact those companies and make sure the charges are transferred to another credit card Being proactive about recurring charges will ensure that you do not end up in a situation where you face service disruption due to non-payment.