Credit cards are one of the most popular, convenient, and flexible financial tools around.
It would be challenging to find someone who doesn’t carry at least one in their wallet.
But despite their usefulness, there are times when cancelling a credit card is warranted or even necessary.
Whatever your reason for cancelling your card, you must ensure you do it properly to avoid negative financial repercussions.
And you must also fully understand the consequences of doing so.
Follow these six steps to cancel your credit card the right way.
Step 1: Redeem any unused rewards
If you own a basic, no-frills card, you can skip this step.
But if it’s a rewards card, confirm if there are any remaining points on your account that you can redeem for merchandise, trips, gift cards, etc.
If you’re content with cash, you may have the ability to redeem your points as a statement credit.
However, you must reach a certain threshold to exercise this option, and points are typically convertible to statement credits once per month, so you may have to wait.
Step 2: Pay off your remaining balance
You don’t want to shut down your credit card account while leaving an unpaid balance.
Once it becomes past due, your credit score will take a hit.
Be sure to check your latest card statement to see if you have any outstanding charges left to pay.
Step 3: Cancel any recurring payments
Recurring payments are bills you have set up to be automatically charged to your card, typically monthly or annually.
These may include subscriptions to streaming services, magazines, software, or a gym membership.
Take stock of the different accounts you have linked to your card and update the payment details for each one.
If you fail to arrange alternative payment methods, vendors will continue to charge your card.
Shortly, bills will start piling up, and interest charges will accrue, even after your card’s account is closed.
Step 4: Contact your credit card issuer
To contact your card issuer, check the back of your card – you should find a phone number for customer service.
Make the call and let the agent know you would like to cancel your card and specify that you want it done at your request (the credit bureaus will record this detail on your credit report).
It’s wise to have them verify that your current balance is $0 before initiating the cancellation of your account, as well.
Step 5: Verify that your credit card account has been closed
Once your card issuer has cancelled your card, send them a follow-up email or certified letter, and ask for written confirmation that your card’s account has been closed.
By following up, you obtain additional proof that your card is closed for good.
In addition, you should inspect your credit report to confirm that your credit card account has been marked as “closed.”
Wait about 30 days before pulling your report, which should be sufficient time for your credit profile to be updated.
Step 6: Destroy your cancelled card
The final step is to destroy your card physically.
Whatever method you decide to employ to dispose of it, ensure it renders the card completely unrecoverable – you don’t want any residual personal details (such as your signature) to be exploited by identity thieves.
Impact of Closing a Credit Card on Your Credit Score
Before closing a credit card, it’s crucial to assess the impact the action would have on your credit score.
Depending on your current financial circumstances, cancelling your card could either significantly impair your credit score or only cause a minor blemish.
Firstly, once you close your card, the account will cease to age.
This effect isn’t ideal, as credit bureaus assess the length of your credit history when setting your credit score.
Lenders prefer to see borrowers with extensive credit experience, so extinguishing a card (especially an old one) may not bode well for your credit score.
Secondly, your credit utilization ratio will automatically increase when you cancel your card, another crucial factor that constitutes your credit score.
The credit utilization ratio refers to the outstanding balance on your account relative to your available credit limit.
Too high of a percentage signifies you’re using a sizable chunk of your credit limit, placing you at higher risk of default on your payments through the eyes of lenders.
Since cancelling a credit card may negatively impact your credit score, is there a proper and safe way to do so? The answer is yes.
First, ensure your card is clear of outstanding charges and that no recurring payments are linked to it.
This will prevent any charges from becoming past due and damaging your payment history, which is a significant factor that contributes to your credit score.
Next, reduce any balance on other credit cards you own to zero or close to it.
By doing so, you’ll work to bring down your credit utilization ratio, which would otherwise spike once you cancel your card.
Considerations on Cancelling a Credit Card vs Leaving it Dormant
Is it preferable to cancel a credit card or leave it dormant? Before making your decision, ensure you carefully weigh both options’ advantages and disadvantages based on your personal and financial circumstances.
The primary advantage of cancelling a card is that you’ll no longer be obligated to pay the annual fee (if your card has one).
Also, you’ll be less tempted to overspend since you have less credit available at your disposal.
Several disadvantages result from cancelling your card.
The most common is a possible dip in your credit score, primarily from a sudden spike in your credit utilization ratio.
A credit card can also help you build your credit score, provide emergency access to credit during a financial emergency, and provide you with superior fraud protection features.
You’ll lose all these benefits should you decide to shut down your account.
The main advantage of leaving your card dormant is the positive impact on your credit score.
Keeping your account active works to lower your credit utilization ratio, and your account continues to age, both of which contribute to a healthy credit score.
In addition, you can still use your card as necessary, such as during an emergency when a sudden infusion of credit is needed.
Still, letting your card gather dust may bring negative consequences, too.
Your card issuer may elect to lower your credit limit, charge you an inactivity fee, or close your account entirely.
Frequently Asked Questions
- Can I cancel my credit card online?
In most cases, no. You may have to speak to your card issuer over the phone to cancel your card. If your card issuer offers a secured chat feature, you can complete your card’s closure entirely online. You’ll still have to interact with a customer service representative, though.
Other card issuers offer a secured messaging centre where you can send an electronic cancellation request directly from your card’s account.
- Is it bad to close a credit card?
If your credit is in excellent shape, and you’re actively using various other credit products responsibly, closing a credit card will have little to no negative impact on your finances, including your credit score.
Suppose your credit is in poor shape. In that case, closing a credit card may further damage it. For this reason, you should evaluate your current circumstances to determine if closing a credit card will make you worse off financially. Also, be sure to consider other benefits and perks you receive from the card, such as a rewards program.