Why You Might Want to Cancel a Credit Card, and How to Do It

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If you’re thinking about canceling a credit card, think twice.

The reason is simple: canceling a card usually has a negative impact on your credit score. That said, there are cases when getting rid of a credit card account makes sense — and we’ll look into those here. 

Keep in mind, though, that banks and credit card issuers have become more restrictive with credit during the recession caused by the pandemic, and holding on to what credit you have is in general a good idea during these times.      

“If you just thought, ‘Oh, I’m going to close my card because I don’t use it,’ just think it through because that’s not ideal. Especially without a really good reason, and right now, when it’s more difficult to get approved for a credit card,” says Beverly Harzog, a credit card expert and consumer financial analyst for U.S. News and World Report. 

If you have a good credit score and you’re doing okay financially, you should hang onto your credit card, Harzog says. Use it every now and then to buy a coffee or a snack, then put it back in a safe place. 

A credit card can be a great tool to build credit, and it may give you peace of mind knowing that line of credit exists if you’re ever in a financial pinch. 

But if you’re ready to break up your credit card, that’s okay, too — in some cases. A lot of rules have been thrown out the window because so many people are in financial survival mode due to the coronavirus pandemic. And, in some circumstances, closing a credit card account makes sense. 

If you’re planning to cancel a credit card or several, here are some things to consider. 

How Closing a Credit Card Affects Your Credit

Closing your credit card account may actually hurt your credit score. Part of your credit score is determined by how much available credit you have compared to how much you use, which is known as your credit utilization ratio. 

Credit utilization and credit scores have an inverse relationship; when your credit utilization ratio goes up, your credit score typically goes down. This ratio increases when you close a card because you have less available credit across all your accounts. 

The longer you’ve had an account, the more closing it will affect your credit score.

Good Reasons to Cancel a Credit Card

There are rational reasons for closing a credit card account. Doing so can keep you from overspending, lowers the risk of fraud, and can save you hundreds in credit card fees and interest annually. According to experts, here are two solid arguments for canceling a credit card: 

Pro Tip

After you cancel your credit card, check your credit report to make sure it was reported accurately. The three major credit bureaus — Equifax, Experian and TransUnion — are letting people check their credit reports weekly online until April 2021. Plus, it’s free.

Your Spending Is Out of Control

If you can’t control your spending, it may be best to get rid of the temptation of putting expenses on a credit card.

“If there’s a concern that having that available credit is going to possibly entice [people] to do something they don’t want to do, then that would be an opportunity to close out the card,” says Larry Sprung, a Certified Financial Planner who’s the founder and president of Mitlin Financial in Hauppauge, New York.

Even if there’s a temporary hit to your credit score, canceling a credit card can give you time to learn about money and curb any temptation to spend. Once you can manage your finances responsibly, you can always get a credit card again.

The High Annual Fee Isn’t Worth It

If you’re paying a high annual fee on a credit card you’re not using, you might be asking yourself whether it’s worth the cost.

First, ask yourself if you use the card frequently. If you don’t, then you should cancel it, Harzog says. That’s hundreds of dollars you could save every year.

“It’s actually a really good reason to close a card, especially if your income has been reduced or you lost your job,” Harzog says.

Cards with high annual fees come with perks that can offset the cost of the fee, though — if you use them. For example, they might offer credits for travel or dining that could make paying the fee more than worth it for you. Consider whether those perks make sense for your current, and projected, lifestyle.  

If the high annual fee is your main concern, you also have the option of downgrading your card to one from the same issuer with a lower fee or no fee at all. You would lose some or all of the perks offered by the higher-fee card, but you would also preserve your credit score. You can always convert back later, if your financial situation changes, to the high-fee card you had originally.   

A Six-Step Checklist For Canceling Your Credit Card

Canceling a credit card is an easy process, but it’s important to do it right. 

You can often cancel a card online, without having to call the issuer, but a phone call to a human might be worth it especially if you are thinking of canceling a card that carries an annual fee. If you call and ask if there are any retention offers, you might have the fee waived, or a statement credit covering all or part of the fee issued.

Credit card companies have recognized that the economic crisis due to the pandemic has affected many customers, and are often willing to accommodate you in order to keep you as a cardholder. It’s worth asking.    

You should only close one account at a time, and start with credit cards that charge you high fees. Also, you should cancel a newer credit card over an older one to mitigate the impact to your credit score, since the age of your credit accounts is a factor in your score. To cancel a credit card, follow these steps:

  1. Pay off your balance or transfer it. You may be subject to fees or penalties if you try to cancel a card while it still has a balance.
  2. Redeem any rewards. Do this before you close your credit card, or you’ll lose out on any rewards you earned. Read the fine print of your card’s redemption terms and consider how it applies to any rewards you’ve accumulated.
  3. Reach out to your credit card company. You can cancel some accounts online, which is convenient, but you can also cancel over the phone. The best phone number to call is typically on the back of your credit card. 
  4. Confirm it in writing (letter or email). Follow up by writing a short letter to the card issuer. It’s an extra layer of protection to ensure your card issuer closed the account. Make sure to include your name, address, phone number, account number, and any other important details in the letter. 
  5. Check your credit report regularly. Sometimes, it can take weeks for any changes to show on your credit report. Keep tabs on it to make sure it’s accurate. You’ll also want to check your credit score periodically to see if canceling the card had an impact. 
  6. Cut the credit card. Once you’ve followed all the steps above and you’re certain the account is closed, you can cut the card with a pair of scissors. If you have a metal credit card, you can send it back to your issuer — which will send you a pre-addressed envelope for this purpose, if you ask — or stow it away in a safe place.