How to cancel a credit card

Closing a credit card may seem like a smart money move, but it can have surprisingly negative consequences for your credit scores and even for your finances. 

That’s why there are only a few good reasons to close a credit card account. For example, if the account is tempting you to overspend it might be time to shut it down. But before you do, make sure you take a few precautionary steps to prevent further headaches with the account.

Seven steps to cancel your credit card safely 

Closing a credit card can be as easy as making a quick call to your credit card company or logging in to your account online. But, unfortunately, if you don’t take a few extra steps to shut down the account properly, you can end up with surprise fees, missed payments, and other financial headaches. 

If you’ve decided it’s time to close your credit card account, try using this process instead:

1. Let other users know: Inform any authorized users on the account that it will be closed and make sure they destroy their copies of the card.
2. Cancel auto pay: Review your recent account statement to find and cancel recurring transactions that could be charged to the card in the future.
3. Update your payment methods: Remove the credit card as a payment method from your personal accounts and update your preferred method of payment.
4. Pay off your balance: Avoid late fees and missed payments by paying off any remaining balance you owe, as well as pending transactions.
5. Redeem rewards: Check to see if you have any unused rewards and find out if you can transfer them or use them after account closure. 
6. Contact the creditor: Call the number on the back of your credit card or log in to your account. Be sure to request and save documentation showing that the account was closed.
7. Destroy the card(s): Cut up or shred the physical card(s) to prevent further use. Metal cards can be sent back to the creditor for disposal.

Why cancel your credit card?

Closing a credit card can cause your credit scores to drop, so it’s not a decision to be taken lightly. Even if you plan to pay off the full balance, and then never use the card again, it might be worth keeping the account open in order to maximize your credit scores. 

There are, however, circumstances in which closing the account could be the right choice, including:

• The fees outweigh the rewards.
• It tempts you to take on more debt.
• To prevent/respond to credit card fraud or identity fraud.
• You’re having difficulty managing multiple open accounts.
• You no longer wish to share the account with a former partner or an irresponsible user.
• Problems with the creditor (e.g. trouble disputing incorrect charges).

What happens when you cancel a credit card?

Once you cancel your credit card, you’ll no longer be able to make charges to the account. You may also forfeit any rewards you’ve earned. Despite that, you’ll still have to pay off any debt you owe on the account.

You can also expect to see a drop in your credit scores after the account closes. That’s because closing a credit card can impact your credit in the following ways:

• Reduces your available credit, which increases your debt-to-credit ratio (DTC). 
• Reduces your average length of account history. But note that this may not be an immediate concern, because closed accounts can stay on your credit reports for up to 10 years.
• May reduce the mix of credit types you are actively using (such as credit cards, personal loans or mortgages).

I canceled my credit card, now what?

After you cancel your credit card, you’ll still need to keep an eye on the account. You can do that by reviewing your free credit reports to ensure that the account has been closed and that charges are not accruing. 

You may want to work on recovering the credit score points that were lost upon closing the account as well. The best way to increase your credit scores is to stay current with your debt payments each month, but it’s also important to keep your balances on any credit cards you still have open as low as possible. 

To potentially gain points faster, consider requesting limit increases on your other credit cards, since this can help you reduce your overall DTC. You could also have a friend or family member add you as an authorized user to one of their credit card accounts that’s in good standing.

Should I cancel my card or keep it?

If your credit card is not causing you any financial difficulties, it’s probably best to keep the account. These are some of the benefits you can may get from keeping the account open:

• Maintain your credit scores: Avoid the loss of points you’ll experience when you close an account. This is particularly important for someone who’s preparing to apply for financing, like a mortgage or a car loan, and needs good credit in order to be approved at low interest rates.
• Earn rewards: If you have a rewards card, you may be earning valuable discounts or perks just for using the card.

Alternatives to closing your credit card

If you’re still tempted to get rid of the card, consider an alternative solution that won’t do as much damage to your credit. For example, you could pay off the card with a lower interest personal loan or a balance transfer credit card, and then leave the credit card open (but not use it). 

You could also contact the creditor to request a reduced annual fee or ask for an account downgrade or product change to a no-annual-fee card, which can give you a reduction in fees (though the rewards program might end up being less lucrative as well).

If you need help managing your overall debt or improving your habits with credit cards, a nonprofit certified credit counseling agency could also help you explore a variety of solutions, like a debt management plan. Just know if you pursue a debt management plan you may have to close your card as part of the program.