How do I cancel a credit card?
Credit cards can offer great financial flexibility and will improve your credit score with responsible management. But if your circumstances change, or you’re being hit with high annual fees, you may wish to cancel your account. You should also consider how closing your credit card account will affect your credit rating.
How will closing a credit card account affect my credit score?
Closing a credit account will affect your credit utilization ratio. This percentage represents how much of your total available credit has been used. For example, if you spent $200 on a credit card, with a limit of $1,000, your utilization ratio would be 20%. Lower ratios signify more responsible borrowing, with the major credit bureaus recommending that your total ratio doesn’t exceed 30% across all accounts.
This ratio is one of the most influential factors to your credit score. It can affect your score by up to 30%, depending on the bureau's scoring model. Closing one credit account reduces your total available credit. This can increase your utilization ratio, even if you don’t increase your balance.
Closing long-standing credit accounts will have minimal impact on factors, such as your payment history. The information from the closed account can stay on your credit report for as long as ten years, with negative information remaining for seven years. Cancelling a credit account will not erase details on things like missed payments or exceeded credit limits.
When should I cancel a credit card account?
Making changes to your credit account is often preferable to closing it down. But if you’re struggling to manage your credit account responsibly, you should consider cancelling it. Regularly maxing out your card will damage your credit score more than closing the account.
If you’re paying a high annual fee for a credit card you rarely use, it can also be a good idea to cancel your card. Try contacting your issuer first to see if you can renegotiate the terms of your account. They may reduce annual fees or interest rates for responsible borrowers over a set period. You can also request to change your account to one without an annual fee, although you may lose certain benefits and rewards.
It can be worthwhile to keep accounts with no annual fees open, especially if they carry a high credit limit. If you no longer use the account, put the card in a drawer or cut it up to avoid spending on it. Remember that issuers can close your account due to inactivity, so you may need to make small purchases every now and again.
Joint credit cardholders should close their account if they are separating or have serious disagreements about its management. In the event of a divorce, ensure that unpaid credit balances are addressed in the settlement.
How do I cancel a credit card?
It’s quick and easy to cancel a credit card account by contacting your issuer. They may offer you better terms to persuade you to keep your account open. If you still want to proceed, the issuer may require you to confirm your request by responding to an email or letter.
You can still close your credit account if there is an outstanding balance. It’s best to clear the balance before cancellation, but if you can’t, your issuer will close the card so no new transactions can be made. You will still have to make payments until you have fully cleared the balance.
For reward cards, check your points balance before closing your account. You may be able to redeem merchandise or travel, or exchange lower point amounts through gift cards. If you’re close to the minimum redeemable amount, you can make small purchases so your accumulated points don’t go to waste.