How to Cancel a Credit Card Without Hurting Your Credit Score

Scissors cutting a credit card
Before slicing your card, learn about the consequences of closing your account and the steps you need to take to close it properly.

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Are you considering canceling your credit card? Maybe you don’t want to pay the annual fee or you don’t use the rewards program enough to benefit from it. Although there are many good reasons to cancel your credit card, you should understand how closing your account could negatively affect your credit score.

There are a host of factors that can hurt your credit score, and you want to make sure you don’t add them to the list. But if you currently have a bad score (or just not enough credit history), you can start improving it today. Credit repair experts are ready to help.

Before slicing your card, however, familiarize yourself with the consequences of closing your account and the steps you need to take to close it properly.

Is closing a credit card account hurting your credit score?

Canceling your credit card can negatively impact your credit score in two main ways:

Lower credit utilization rate

A number that represents 30% of your credit score is your credit utilization rate. Your credit utilization ratio is the amount of credit you are using compared to your available credit. So if you have a total balance of $3,000 on all your credit cards and your total available credit is $10,000, your credit utilization rate is 30% (3,000/10,000 = 30) . Credit experts recommend keeping your credit utilization ratio at 30% or lower (the lower the better).

In this example, if you close a credit card with a credit limit of $4,000, your total available credit would drop to $6,000 ($10,000 – $4,000 = $6,000). With that same $3,000 balance, your credit utilization rate increases dramatically to 50%, which could hurt your credit score.

Reduce the average age of your accounts

Another critical factor in your credit score is the average age of your accounts. The longer you’ve been managing your credit, the better it is for your credit score. Your score takes into account the average age of all your accounts, so closing your old accounts might have a bigger impact on your score than a new account.

If your credit utilization ratio is low or the average age of your accounts is limited, your credit score could suffer. If any of these situations apply to you, it may be worth talking to an expert who can help you improve your score.

When closing your credit card makes sense

Although closing your credit card can negatively affect your credit score, there are times when it might make sense.

  • Your card has an expensive annual fee: It might not be worth carrying a card with a high annual fee, especially if you don’t use the rewards.
  • The card comes with a high interest rate: It’s understandable if you want to cancel a credit card with a high interest rate. But keep in mind that you can avoid paying interest by paying off your balance each month or not using the card at all.
  • You are going through a divorce or separation: Closing a joint credit card with your spouse or partner after a breakup may be a logical choice. This could help keep your finances separate and avoid any surprise purchases on your ex’s card.
  • Your card is causing overspending: If you’re used to maxing out your credit card, closing your account might help you control your spending.
  • Your card does not match your spending habits: You can get more value and maximize your rewards earnings by choosing a card with benefits that better match your spending habits.

Alternatives to canceling your credit card

If you want to avoid canceling a credit card and potentially damaging your credit, consider the following alternatives to help you achieve your goals.

Negotiate for better rates or another card

Sometimes the best option is to have an honest conversation with your card issuer. Let them know you’re considering canceling your credit card and want to explore your options. For example, if you want a lower interest rate or a card with no annual fee, see if your card issuer can transfer your account to another card that better suits your needs. This allows you to keep your account open.

Transfer your balance to a low interest card

You can save money on interest charges by transferring the balance from your high-interest credit card to a lower-interest card. You can transfer the balance to another card or a new one and keep both of your accounts open. Remember, it’s better to keep unused credit cards than to cancel them, as this keeps your credit utilization rate lower and your credit history longer.

How to Cancel Credit Cards Without Hurting Your Credit

Before canceling your credit card, it’s important to consider the potential damage to your credit score. Why is this important? Because good credit can be the deciding factor in whether you can get a mortgage, car loan or student loan or other forms of credit. In contrast, bad credit makes it difficult to get approved for such products, and the cost of borrowing is usually higher than for those with good credit.

However, if you have decided to cancel your card, here are the steps to complete the process.

  1. Check your current rewards balance. Some cards cancel everything cash back or other rewards you have earned when you close your account. If you have rewards points, redeem them or you may lose them.
  2. Contact your credit card issuers. Call your credit card company to determine your refund amount and proceed with account closure. Verify that your account balance is zero. Your card will be canceled instantly and you should receive written notice confirming the closure.
  3. Send a follow-up letter. Although this step is optional, you can send a confirmation request by certified mail. Ask your card issuer to respond with a written confirmation that your account is closed with a $0 balance and keep this letter for your records.
  4. Check your credit report. Approximately 60 days after closing your account, verify that your credit report shows that your account is closed at your request.
  5. Destroy your card. Once you’ve confirmed that your account is closed, you can help prevent fraud and identity theft by cutting up your card and disposing of it.

Should you cancel your credit card?

The decision whether or not to cancel your credit card is one that only you can make after weighing the pros and cons. If you’re concerned that your credit score may be temporarily affected, consider alternatives like negotiating better terms or switching to a different credit card from your issuer. However, if the temptation to overspend with your credit card is too great, canceling the card may make sense.

What if you’ve already hurt your score by canceling a card prematurely? You have options to help rebuild it. Get started now with the credit repair process.