Although canceling a credit card may seem simple, it is important to consider all options before acting. In some circumstances, your credit score may suffer if you cancel a card. Continue reading to find out the things to think about before canceling a credit card and the best approach to doing it.
It’s important to give the decision and any potential repercussions great thought before starting the cancellation process for a credit card.
The impact of canceling a credit card can persist for years on your credit scores and reports.
It’s important to note that closing a credit card can have a big influence on your credit score, even though it may seem like a handy method to transfer to a better alternative or end a relationship with a pricey card that contributed to your financial problems.
But this does not necessarily mean that canceling a credit card is a bad choice. Prior to moving forward, it’s critical to be informed of the consequences. Let’s talk about some things to think about when thinking about canceling a credit card and how that might affect your credit.
Follow these steps to permanently cancel your credit card:
- Ensure that you settle any credit card balance that is still owed.
- Terminate any subscriptions or recurring payments connected to the card.
- Determine if you need to redeem any accrued rewards or points before canceling.
- Contact your credit card issuer via phone to initiate the cancellation process.
- Alternatively, visit your credit card issuer’s website and follow their instructions for canceling the card.
- It’s advisable to follow up with a written communication to confirm the cancellation.
- Double-check your credit reports after a few months to ensure that the card is reported as closed.
- Safely dispose of the physical card by cutting it or shredding it.
Now, let’s address some common concerns:
Will your credit score decline if you cancel a credit card?
Is it better to cancel unused credit cards or keep them?
Next steps:
How do you ensure that your credit card is permanently canceled?
If you’ve explored all other alternatives and still want to cancel a credit card, here’s how you can do that:
- Ensure that you pay off any outstanding balance on the credit card.
Consider deactivating your card for a fresh start. The last thing you want is to have a credit card balance that requires ongoing payments even after you close it.
2. Cancel any recurring payments or subscriptions linked to the card.
If you’ve set up recurring payments for your invoices, make sure to check your payment details.
3. Determine if you need to redeem any accrued rewards or points before canceling.
Check the conditions of your program to see if you need to utilize your rewards before canceling because incentives can occasionally expire after your credit card account is terminated. If you’re struggling to pay off your debt and have rewards, you might be able to use them as a statement credit to assist you.
4. Contact your credit card issuer via phone to initiate the cancellation process.
The customer support phone number ought to be printed on the back of your card. Tell them you want to cancel your credit card to begin the process.
5. Visit your credit card issuer’s website and follow their instructions.
You may also be able to cancel online after signing into your account if you don’t want to speak with customer service via phone.
6. It’s advisable to follow up with a written communication to confirm the cancellation.
After you cancel, it’s a good idea to contact your credit card company by email or letter to ensure your card has been canceled. Given this, in case you made a mistake and discovered your card was still active, you can document the date you requested the cancellation.
7. Double-check your credit reports.
You can check your credit reports to make sure that they accurately reflect the closure of your card if you don’t want to trust the word of your credit card provider.
8. Safely dispose of the physical card by cutting it up or shredding it.
An easy but crucial step. Making sure no one tries to use your credit card after it has been closed can be accomplished by cutting it up.
Will your credit score decline if you cancel a credit card?
Your credit score might be negatively impacted if you cancel a credit card, particularly one you’ve had for a while. Your credit ratings are primarily impacted by five variables: payment history, debt owed, length of credit history, new credit, and credit mix. Each of these elements, and consequently your ratings, could be impacted by canceling a credit card.
Let’s look at how each of these important credit criteria could be impacted by canceling a credit card.
Payment history
Credit can be built using a credit card by continually making on-time and complete payments. This can be a simple technique to improve your credit if you’re able to.
However, canceling the card could shield you from future activities that could damage your credit if you believe you won’t be able to pay off your balance each month in the long run. You must first talk with your issuer about your choices if you currently have a balance on your card and want to close it.
Payments due
In order to make sure you aren’t utilizing all of your available credit, credit bureaus keep track of how much you owe on your accounts. Your credit utilization rate is the ratio between the amount of credit you have available and the debt you now have. Typically, a lower rate is preferable.
Your credit utilization rate will remain higher and could harm your credit scores if you can only afford to make the minimum payment each month while maintaining a balance.
But if it dramatically reduces your total credit limit, canceling your credit card might simply make the situation worse. You can see a significant impact on your scores if you intend to close a card without getting another line of credit.
Credit history’s duration
It normally benefits your credit to have a longer history of open credit. Lenders prefer it when you have a history of responsibly managing your credit over time.
However, when a credit card is closed, it stops growing and ceases aging. For at least as long as it takes to open another account, it will damage your credit history.
Additionally, even if you rarely use the card you’re considering canceling, if it was also your very first credit card, we strongly advise keeping it open. It will have the most influence on the duration of your credit history because it is your oldest line of credit.
Extra credit
A hard inquiry may appear on your credit reports when you apply for a new credit card. This demonstrates that the lender investigated your credit before approving your account.
If you close your credit card to apply for a new one, it won’t have an impact on your new credit. This might seem like a logical strategy if you feel more at ease using one credit card at a time.
We don’t want to stop you from getting a new credit card that more closely matches your requirements and spending patterns. However, you should be informed that the new credit card application will result in a hard inquiry and have an immediate impact on your credit ratings. That effect could be significant if you submit that application and close your existing account at the same time.
Credit Mix
Lenders prefer to know that you can manage both installments and revolving credit, such as a loan with a fixed monthly payment.
You risk completely deleting revolving credit from your credit reports if you decide to close your line of credit without getting a new one. Lenders won’t be able to evaluate the range of credit you use in that case and may be less willing to cooperate with you.
Is it better to keep or cancel unused credit cards?
If you frequently use your credit card, canceling it might cause you to change a lot of your routines. It’s a good idea to consider how you’ll pay for goods after canceling your card, even if you have other cards.
For instance, you’ll need to come up with a new form of payment if you often use your credit card to pay for expenses at gas stations, restaurants, and grocery stores. You might be losing out on future rewards if the card you previously used at those sites generated incentives. If you intend to employ another card, research its features to see whether it is a competitive choice.
On the other hand, you might already be of the mind that you favor paying with a debit card, check, or cash. However, each of those choices has unique advantages and disadvantages that should be taken into account before making a decision.
Even though canceling a credit card won’t significantly change your way of life or credit history, it could still be simpler to leave the card open. In fact, there are a number of alternatives that might prove to be less dangerous.
Place the card in a safe place.
Maybe you’ve come to the conclusion that you simply dislike using credit cards. If that’s the case, instead of closing the card, think about retaining it and putting it aside. This course of action may seem obvious, but it may be simple to maintain the card without damaging your credit if you keep the account open and remove the temptation to use it.
Find a different strategy to manage your growing debt.
If you want to pay off your credit card debt but don’t want to make any additional payments, you might think about asking your card issuer to close your card account. However, you might also be able to pay off your debt using a personal loan or a credit card with a balance transfer. These choices could provide a more reasonable way for you to pay off your debt.
Reduce your card’s balance to avoid an annual fee.
Ask your credit card provider if it may keep your account open while downgrading you to a card with no annual charge if you’re paying an annual fee on a card you don’t use.
Next Steps
You ought to be able to tell by this point whether canceling a credit card is the right move for you. Remember that canceling a card could cause you to modify many of your behaviors and could have an impact on your credit history and credit score if you now rely on your credit card for everyday purchases.
On the other hand, you might already be of the opinion that a debit card, check, or cash is the preferred method of payment. You might also no longer use the disputed card, have already received approval for a better card, or prefer not to pay annual fees. However, each of those choices has unique advantages and disadvantages that should be taken into account before making a decision.