How to Cancel a Credit Card Without Hurting Your Score
Canceling a credit card is easy. You just have to call your credit card company and ask. You will also have to bring your balance to zero, though you may be able to close your account and then continue making the necessary payments. But canceling a credit card without hurting your credit score is a bit harder. When you close a credit card account, the total amount of credit that you have available falls, causing your credit utilization to rise, which is bad for your score. If your account was in good standing, you’ll also lose out on a dose of positive information being added to your credit reports every month. A lot of people don’t know this, but you get credit for paying on time every month even when your account has zero balance. Perhaps most importantly, canceling a credit card account can also make it seem like you have a shorter credit history.
The key to canceling a credit card without hurting your credit score is to avoid your oldest and highest-limit accounts, especially if they don’t charge annual fees. And if closing such an account is necessary, you can minimize the impact by doing it when you won’t need to put your best credit score forward for at least a few months. In other words, if it doesn’t cost you money, you shouldn’t worry too much about the temporary credit score damage that can result from canceling a credit card account.
Below, you can learn more about when to cancel a credit card and how to do it without disrupting your finances. You can also keep track of your credit score with WalletHub’s free daily updates and get personalized tips for how to take it to the next level.
All you have to do is flip your card over, call the customer service number listed on the back, and tell the representative that you wish to close the account. If you don't have the physical card, you can easily find the number online, and the issuer will be able to look up your account number using your SSN. Some people also recommend mailing the credit card company a cancellation letter, just to be sure the request is on record and does not fall through the cracks. But that’s probably overkill in this day and age.
There are, however, a few things you’ll need to do before and after you set the cancellation process in motion to achieve the best results:
- Use All Unredeemed Rewards: Credit card companies make it nearly impossible to redeem rewards once the cancellation process begins. You can’t count on a customer service representative warning you ahead of time, either. That’s why leaving rewards value on the table is one of the most common mistakes people make when closing unused credit cards.
- Make Sure There is No Unpaid Balance: You can’t completely close a credit card account with an unpaid balance. The terms of your agreement with the issuer won’t be satisfied until all amounts owed are repaid. This can be a stumbling block for many people given how confusing credit card billing is. Even if you paid the full amount listed on your last statement, there still could be a small balance remaining if interest was charged between your statement date and when you paid the bill. So it’s best to double-check your balance online and confirm with a customer service representative that it’s zero before requesting closure.
- Verify the Change is Noted on Your Credit Reports: About two months after you close your account, check your free credit report to make sure the account in question is marked as “closed.” If it’s not, the cancellation might not have gone through, due to some mistake on the credit card company’s end. And you’ll need to notify them of the error.
Once you’ve cancelled your account, cut up your card before disposing of it, just to be safe.
“Investing in a shredder is one of the best $25 investments someone can make,” says Christopher Browning, an assistant professor in the Department of Personal Financial Planning at Texas Tech University. “Even if a credit card is expired and can’t be used to make purchases, simply throwing it away makes information that is potentially sensitive available for someone to use in a harmful way.”
Closing a credit card account can hurt your credit score, but the impact varies based on the circumstances. Closing your oldest credit account usually causes the most damage, according to WalletHub’s analysis, making it seem like your credit history is shorter than it really is. Closing an unused account with a high spending limit can also cause problems. Doing so reduces your available credit without changing your spending, which increases your credit utilization.
In other words, canceling a credit card account puts two components of your credit score in jeopardy.:
- The Amounts Owed portion of your credit score accounts for roughly 30% of your overall rating and includes a metric known as “credit utilization.” Credit utilization is a ratio of credit used vs. credit still available. And that credit scoring companies calculate for each of your individual credit lines and installment loans as well as all such accounts on aggregate. Closing an unused credit card will remove that account’s credit line from your available credit, automatically increasing your overall utilization ratio. Creditors like utilization to be under 30%, so if canceling your card puts you well above that number, it’s probably best not to do so.
- The Length of Credit History component makes up about 35% of your credit score. It details how long you’ve been using credit cards and installment loans. This includes the age of your oldest and newest open accounts as well as the average age of all such accounts. As a result, closing an unused credit card will definitely reduce your average account age. And depending on which card you plan to cancel, it could throw off the oldest account metric as well.
It’s impossible to pinpoint exactly how much your credit score will fall as a result of canceling a credit card account. But all else being equal, it's better not to do so.
It’s unwise to cancel a credit card account without carefully considering the potential credit score damage. But even with your score’s fate factored in, there are some situations when you should put an old credit card to rest. We’ll lay out the most common ones below.
- When the Card Has an Annual Fee: No one likes annual fees, especially when you don’t get anything back in return. So if you’re paying for a card you no longer use, first call the issuer to see if they’ll waive the fee. This works more often than you might think. If it doesn’t, you may want to close the account, assuming you won’t need the highest credit score possible in the next 6-12 months. Sometimes, it’s better to just bite the bullet, especially since there are a number of ways that you can improve your standing to compensate.
- You Simply Have Too Many Cards: With new promotional offers cropping up on a regular basis, it can be tempting to open a new credit card every so often. But at the same time, you don’t want to end up with a million different cards or all the mail and fraud concerns that could come along with them. The best way to keep your credit card arsenal manageable is to close the newest ones you no longer use.
- During Divorce Proceedings: Figuring out what to do with a shared credit card account when a relationship comes to an end can be difficult. Closing the account in question tends to be the answer if the couple applied for it together, as opposed to one person making the other an authorized user. Continuing to use a joint account will only lead to arguments over who owes what. And that could easily result in missed payments and credit score damage.
- As Part of a Debt Workout Agreement: It’s common for credit card companies to reduce a credit card’s spending limit, or to revoke purchasing privileges altogether, when the accountholder has not paid the bill in a long time. Many issuers also make closing the account a condition of debt settlement or debt management agreements. In this case, the decision to close the account is out of your hands.
If You’re a Victim of Fraud: This situation speaks to the literal difference between canceling a credit card and closing a credit card account entirely. Those terms are typically used interchangeably. But you can actually cancel a card without completely shutting down your account.
Say you lose your card or someone gets ahold of your account information and begins racking up charges. Your credit card company could simply close the affected card and issue a replacement with a new number, expiration date and CVV code. Doing so will not affect how the account is listed on your credit reports, which means no credit history will be lost as a result.
You might assume that closing a credit card account is an innocent, perhaps even beneficial, act. But doing so can actually damage your credit standing by increasing your credit utilization and shortening the length of your credit history. No one wants to take an unnecessary credit score hit, so be strategic about which cards you decide close. Have a clear purpose for doing so in mind, and time it so that the short-term credit hit does not have a domino effect.
If your desire to cancel your card stems from the belief that it will lead you to overspend, you can always just cut it up! That will remove the temptation without hurting your credit. Alternatively, you could ask for a lower limit. But that would increase your credit utilization if you don’t also reduce your spending.
Image: Derek Hatfield/Shutterstock
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