Learn how to cancel a credit card and avoid problems

Canceling a credit card might seem like a straightforward task, but there are important steps to follow to avoid potential pitfalls that could impact your credit score or leave you with unexpected charges. Whether you’re looking to reduce your number of cards, avoid annual fees, or simply streamline your finances, knowing the correct procedure is key to a smooth cancellation process.

Why Consider Canceling a Credit Card?

There are several valid reasons why you might want to close a credit card account:

• High Annual Fees: If the benefits no longer outweigh the cost of the annual fee.
• Too Many Cards: Simplifying your finances by reducing the number of accounts to manage.
• Avoiding Overspending: If you find yourself consistently overspending on a particular card.
• Poor Rewards Program: If the card’s rewards no longer align with your spending habits.
• Security Concerns: If you believe the card has been compromised or misused.
• Getting a Better Offer: If you’ve opened a new card with superior terms and no longer need the old one.

Before You Cancel: Essential Pre-Cancellation Steps

Don’t just jump into canceling! There are a few crucial steps to take before you even pick up the phone or go online to close your account. These steps will help protect your credit score and ensure a hassle-free cancellation.

Pay Off Your Balance: Clear All Outstanding Debts

This is the most critical step. You must pay off your entire outstanding balance before canceling a credit card. This includes any purchases, cash advances, and accrued interest. Leaving even a small balance can lead to late payment fees, interest charges, and a negative mark on your credit report, even after you’ve initiated the cancellation. It’s often recommended to pay off the balance a few days or weeks before calling to ensure the payment has fully processed and cleared.

Redeem All Rewards: Don’t Leave Value Behind

Many credit cards offer points, miles, or cash back rewards. Before closing your account, make sure to redeem all accumulated rewards. Once the account is closed, you will likely lose access to any unredeemed points or cash back. Check your card’s rewards portal or statement to see your current balance and redemption options.

Set Up New Recurring Payments: Avoid Service Interruptions

If the credit card you’re planning to cancel is linked to any recurring payments – such as streaming services, utility bills, gym memberships, or subscriptions – you’ll need to update these payments to a new credit card or debit card before cancellation. Failing to do so can lead to missed payments, service interruptions, and potentially late fees from the service providers. Make a list of all recurring charges associated with the card to ensure you don’t miss any.

Understand Credit Score Impact: Plan Your Strategy

Canceling a credit card can sometimes have a minor, temporary impact on your credit score, especially if it’s one of your oldest accounts or if it significantly reduces your overall available credit.

• Credit Utilization Ratio: Closing a card reduces your total available credit, which can increase your credit utilization ratio (the amount of credit you’re using compared to your total available credit). A higher utilization ratio can negatively impact your¹ score.
• Length of Credit History: Your credit score considers the average age of your credit accounts. Closing an old account can shorten this average, which might slightly lower your score over time.

For these reasons, financial experts often recommend keeping your oldest credit accounts open, even if you don’t use them frequently, to maintain a long credit history and a healthy available credit limit. If you have many cards, closing newer ones first usually has less impact.

The Cancellation Process: Step-by-Step Guide

Once you’ve completed the pre-cancellation steps, you’re ready to contact your credit card issuer.

1. Contact Your Credit Card Issuer: Speak Directly to Them

The best way to cancel a credit card is by calling the customer service number on the back of your card. Be prepared to provide your account number and personal identification to verify your identity.

• Be Firm but Polite: The representative may try to offer you incentives to keep the card open (e.g., waived annual fees, bonus points, better interest rates). If you’ve decided to cancel, politely but firmly state your intention to close the account.
• Confirm Zero Balance: Ask the representative to confirm that your balance is zero and that there are no pending transactions.
• Request Confirmation: Ask for a confirmation number or a written confirmation (via email or mail) that your account has been closed. This is crucial for your records.

2. Cut Up the Card: Secure Your Information

Once you’ve confirmed the account closure, cut up your physical credit card into multiple pieces, ensuring that the chip, magnetic stripe, and account number are destroyed. This prevents any unauthorized use of the card.

3. Monitor Your Credit Report: Verify the Closure

About 30-60 days after cancellation, check your credit report (you can get a free copy annually from major credit bureaus). Ensure that the canceled account is reported as “closed by consumer” and shows a zero balance. This confirms that the cancellation was processed correctly and helps you spot any errors.

Avoiding Common Cancellation Mistakes

• Don’t Cancel Without a Zero Balance: As mentioned, this can lead to fees and negative credit marks.
• Don’t Rush the Process: Take your time to redeem rewards and update recurring payments.
• Don’t Close Your Oldest Card (Unless Necessary): Understand the potential impact on your credit history length.
• Don’t Close All Your Cards: Having no active credit can make it harder to build credit and obtain loans in the future. It’s generally wise to keep at least one or two credit cards open and use them responsibly.

By following these guidelines, you can confidently cancel your credit card without encountering unforeseen problems, allowing you to optimize your financial portfolio effectively.