Credit Card Debt

How to Cancel a Credit Card

Managing Credit Card Debt
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Do you have an old credit card you no longer use? If you’re paying fees to keep it open or worried it’s too much of a temptation to keep spending, you may think it’s smart to cancel it—but should you?

Canceling a credit card could have some unforeseen consequences to your finances. So before you take the next step, it’s important to understand how the credit card cancellation process works, its associated risks, and—if you do choose to do so—how to cancel a credit card.

When should you cancel a credit card?

In general, you should only cancel a credit card if it’s costing you too much money. For example, if you’re paying an especially high annual fee on a card you haven’t used in several months, it might be time to cancel. You’re effectively throwing that money away if you’re not really utilizing it.

Even if your card has high interest rates and fees, you may want to consider negotiating the terms on your credit card before you cancel. If you’re in good standing with your creditor, you could call them up and ask them for better terms and lower fees on your credit card. While there’s no guarantee they’ll say yes, some creditors would rather change their terms than lose your business entirely.

Another instance where it may make sense to cancel is when a creditor sends you a notice that your card’s terms are changing and the new terms are no longer favorable. The good news is that your creditor is required to give you a 45-day window after notifying you about any change in terms where you’ll be able to pay off the remaining debt on the card or transfer the balance to another card before the original terms expire.

In any event, you should determine whether it’s a good idea to close out your account before you dive into the details of how to cancel a credit card.

Does cancelling a credit card hurt your credit score?

Canceling a credit card could, in fact, hurt your credit score because it reduces the amount of credit that’s available to you. The amount of available credit you have versus the amount of available credit you’re using is called your credit utilization. Unless you’re completely debt-free, canceling a credit card will increase your credit utilization ratio, which could hurt your credit score.

Another factor that affects your credit score is your credit history, which is the record of your repayment of debts. The longer it is, the more reliable you appear to creditors.

If you cancel your oldest card, your credit history could appear to be shorter, which could hurt your credit score. So, in addition to learning how to cancel a credit card, you’ll need to understand that cancelling a newer card could hurt your credit score less than cancelling an older card.

Your credit mix also affects your credit score. Put simply, credit mix is the amount of different kinds of credit you have. These can include a mortgage, personal loans, credit cards, and student loans. The more diverse your credit mix, the better. So if you only have one credit card, cancelling it could hurt your credit score because it changes your credit mix.

How to cancel a credit card

Here’s a step-by-step guide on how to cancel a credit card:

  1. Plan to pay off or transfer the balance before canceling. If you fail to eliminate the balance on the card, you could get hit with additional fees and interest rates.
  2. Contact your credit card company and cancel the card. If the customer service representative you speak with tries to sway you to reconsider, this could be an opportunity to renegotiate. For example, if you’re cancelling due to a high annual fee, try to get the fee reduced or even removed.
  3. Send a letter to your credit card company. State that you are canceling your card and that you require a written reply from them within 30 days. Documenting that you canceled your card protects you if the credit card company claims that you never closed the account.
  4. Destroy your credit card. When you cut it up, make sure to destroy the magnetic stripe and RFID chip as well.
  5. Check your credit report in a few weeks. You’ll want to confirm that the cancelled account no longer shows up on your report. You can get a free, federally authorized credit report once a year.

Keep in mind that while you can cancel a credit card if you still have a balance, you still have to pay the remaining amount you owe plus any interest that continues to accrue.

Is cancelling a credit card a good idea?

Now that you know how to cancel a credit card, you’re probably wondering whether it’s a good idea to do so. First of all, it won’t help you get rid of your debt or avoid your temptation to spend. In fact, it could have negative effects on your credit and put you in a worse financial position. That’s why it’s usually better to keep the card open and continue paying the small recurring fee that comes with it.

If you’re thinking of cancelling your card because you don’t want to get into more debt, it’s more important that you deal with the root of the problem. Depending on how much you owe, there are several solutions that could help you end your debt stress without the negative effects of cancelling your card.

Become a pro at managing your finances and planning for the future

Learning how to cancel a credit card (assuming it’s actually in your best interests), how to deal with debt, and plan for your future doesn’t need to be difficult. Our simple-to-follow guide will help you find what you need to plan for a better financial future. Get started right now by downloading our free guide.

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Housten Donham is a freelance copywriter. He hopes to help others navigate their financial futures and cultivate a healthy relationship with money. He lives in Arizona, where he spends most of his free time reading and writing.