Credit Card Debt

How to Cancel a Credit Card

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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 and cancel your card, it’s important to understand how the credit card cancellation process works, and what risks are associated with cancelling your credit card.

When Should You Cancel a Credit Card?

In general, you should only cancel a credit card if keeping the card is 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 the card.

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.

You may want to consider negotiating the terms on your credit card before you cancel.

Another instance where it could be smart to cancel a credit card is when a creditor sends you a notice that your card’s terms are changing and the new terms are no longer favorable to you. The good news is, after notifying you that your terms are changing, your creditor is required to give you 45-day window 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.

Can You Cancel a Credit Card If You Still Have a Balance?

Yes, you can cancel a credit card that still has a balance. However, if you cancel a credit card with a balance, you still have to pay the remaining amount you owe on the card plus any interest that continues to accrue. On the other hand, you’ll no longer be allowed to make new charges on the account, since doing so will keep your card active.

How Does Debt Consolidation Work?

Find out here.

Does Cancelling a Credit Card Hurt Your Credit Score?

Canceling a credit card could hurt your credit score. Here’s why:

When you cancel a credit card, it reduces the amount of available credit you have. The amount of available credit you have versus the amount of available credit you’re using is called your credit utilization.

Unless you are completely debt-free, canceling a credit card will increase your credit utilization ratio. As a consequence, canceling your credit card could hurt your credit score.

Another factor that affects your credit score is your credit history. Your credit history 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 if you want to cancel a credit card, choosing a newer card to cancel could hurt your credit score less than cancelling an older card.

You 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 that card could hurt your credit score because it changes your credit mix.

Overall, cancelling a credit card has no real positive effect unless you are paying high fees on your card and want to save some money. But if you think it’s the best option for you, be sure to cancel your credit card the right way.

How to Cancel a Credit Card

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

  1. Plan on paying off or transferring the balance on the card 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. You can do this online or over the phone. The customer service representative you speak with may try to sway you to reconsider, but this could be an opportunity to negotiate better terms. If you’re cancelling due to a high annual fee, see if you can get the fee reduced or even removed. You have nothing to lose if you were planning to cancel anyway.
  3. Send a letter to your credit card company stating that you are canceling your card and that you require a written reply from them within 30 days. Include your name, date, and the billing address associated with the credit card in this letter. 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 on the card.
  5. Check your credit report in a few weeks 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.

Is Cancelling a Credit Card a Good Idea?

Whether you’re overwhelmed with debt, want to avoid spending temptations, or you’ve paid off all your cards and just want to get rid of some, cancelling your credit card might seem like a good idea. But cancelling your card won’t actually 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.

Learn About 7 Solutions that Could Help You Get Out of Debt.

Download our free guide now.

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.