How to Cancel a Credit Card

You shouldn't see a credit card as a lifelong commitment. And you should generally feel free to close an account when you don't need it anymore.

Let's dig into the details of when and why you might consider canceling a credit card—and when you might want to reconsider.

When NOT to Cancel a Credit Card

There are times when closing any credit account is a bad idea. That's particularly the case if you're applying for a large loan, such as a mortgage or auto loan. Why? Because closing an account can harm your credit score.  

It’s worth noting that lenders often use credit score ranges when deciding both whether to approve your application and the interest rate you'll pay. For example, FICO counts a score between 670 and 739 as "Good." And one of 580-669 as "Fair." 

So, if your score is currently 673 (good) and canceling a credit card causes it to drop a few points, you might fall into the Fair category. And that could cause lenders to charge you higher interest rates or decline your application altogether. 

But note that each lender can set its score ranges wherever it wants. So you can't predict when you're at risk of dropping from one range to another. Just don't cancel a card close to the time you're applying for a big loan or new card.

How do you cancel a credit card without hurting your credit score? Very carefully.

When to Cancel a Credit Card

For most people, most of the time, there's no reason to cancel a credit card. Indeed, retaining dormant ones and using them for an occasional purchase or a small recurring bill might help keep your credit score high. Just make sure the unused cards are safely locked away.

But there are circumstances in which it's a good idea to rid yourself of one or more. Here are the most common ones

Cancel credit cards with high fees

There's nothing wrong with a card charging you a high annual fee, if it delivers benefits that justify the cost. 

Take, for example, American Express's Platinum Card. If you travel a lot, its complimentary airport lounge access, free Global Entry or TSA PreCheck® and elite status at hotel chains can transform your travel experiences. And its statement credits, if you earn them, can pay the $695 annual fee and then some.

But suppose you've switched jobs and no longer travel much.

Suddenly, that $695 every year looks like a pointless (in every way) drain on your bank account. And you'd be quite right to dump this card. Many other travel cards charge annual fees between $95 and $450. And several other non-travel cards charge annual fees. They're all wastes of money if you're not reaping their benefits.

Cancel credit cards if you’re struggling with overspending

Some of us overspend on credit cards, harming our credit scores. Because maxing out a card (or even having a balance of more than 30% of its credit limit) can hurt your score. There’s a good reason that debt management plans from credit counselors often require you to cancel most if not all of your cards. And if you're seeking working with a debt settlement company, you will be closing credit card accounts in the course of settling your debts.

Some people call their card issuers to see if it's possible to freeze rather than cancel a credit card account. And some companies are happy to help. But it may be safer simply to dump the card, depending on how easy it is to unfreeze that account. 

How Does Canceling a Credit Card Affect Your Credit?

Let's be clear, canceling a credit card can only harm your credit score. It can't improve it. Here are three reasons why.

Credit utilization ratio

Your credit utilization ratio makes up 30% of your credit score, though FICO misleadingly calls it your "amounts owed." The amount you owe in total doesn't impact your credit score.

But it sure does worry about the proportion of your available credit you use across all your credit cards. To calculate your credit utilization:

1. Add up all your card balances.

2. Add up all your card credit limits.

3. Divide your total balances by your total limits.

4. Multiply the figure on your calculator by 100.

5. The new amount is the percentage of your credit limits that you're using—your credit utilization ratio.

Let's look at an example. Suppose you have five cards with balances totaling $7,000. And your credit limits across those cards add up to $25,000. 

Divide $7,000 by $25,000 and your calculator says 0.28 ($7,000 ÷ $25,000 = 0.28) . Multiply that by 100 to discover you're using 28% of your available credit. And that's your credit utilization ratio.

Now, let's suppose that you don't use one of these cards. It has a $0 balance and a credit limit of $5,000. And you decide to cancel it. 

You still owe $7,000 on your cards. But your credit limits now total only $20,000. Divide $7,000 by $20,000 and you get 0.35 or 35%. 

And that's a real problem. Because the golden rule for credit cards is that you keep your credit utilization ratio below 30%. And every month your ratio is higher than that will see your score move lower.

Length of credit history

The other main threat to your score when canceling a card concerns the length of your credit history.

Again, FICO's wording isn't precise. Because it really refers to the average age of your accounts. And it makes up 15% of your credit score.

To be honest, canceling a card that you obtained only recently probably won't make all that much difference. But, if you are thinking of getting rid of a card you've had for ages, it could have a real impact. 

And, if you have few other active credit accounts, you should think twice before you cancel a credit card. People with unusually few accounts can end up with "thin files," which typically translate into low scores. Consider keeping the card, using it occasionally and zeroing your balance each month you do. That should keep you in the game.

Still, for most, there's little need to panic. According to Experian, a record of that closed account will remain on your credit report (and thus will be counted for your credit score) for another 10 years. 

Credit mix

FICO likes to see a mix of different types of credit (like credit cards, a mortgage and installment loans). Credit mix is a relatively small credit score factor, accounting for 10% of your FICO Score. But if you cancel the only credit card you have, you could ding your score by a few points because you’ll have a less diverse mix of accounts.

Canceling a Card Won't Wipe Out

Note that adverse items on your report concerning the account (such as missed or late payments) will fall away only after seven years.

Obviously, this has implications for those who wish to cancel a credit card because they think that will cause some past adverse items to be deleted from their report. That's not how it works. 

And those items will continue to affect your score for seven more years. However, their impact lessens over time. 

How to Cancel a Credit Card Safely in 10 Steps

A credit card isn't a puppy. And you don't have to make a lifelong commitment to your plastic. But you need to know how to cancel a credit card safely. So follow this step-by-step guide.

1. Order a free copy of your credit reports from annualcreditreport.com. Study the reports to make sure closing the account won't leave you with a "thin file" nor drastically reduce the average age of your accounts.

2. Calculate your credit utilization ratio to see how canceling a credit card will affect it. Make sure your remaining total card balances are less than 30% of their total credit limits.

3. Check the balance on the card you're canceling. It's best to close an account when it has a zero balance. Make sure you switch any recurring expenses you were charging on the card to a different one to avoid missing payments.

4. If the card has a balance that you can't immediately clear, call the card company and reach a repayment arrangement. You may prefer to wait to close the account until the money's paid off.

5. Check any rewards that remain on your card. You risk losing them when you cancel. So explore ways to redeem or transfer them before you close the account.

6. When you call the card issuer to cancel, be aware of your leverage. Companies hate losing customers. And you may be offered a special deal (like a waived annual fee, a lower interest rate, or extra perks) to keep your business. Think through what might keep you on board before you call.

7. Another option you may be offered is to switch to an alternative card from the same issuer with no fee or a lower rate. Again, think through before you call whether that might be a good idea. Otherwise, you might be swayed by a sweet-talking agent.

8. Follow up a call center conversation canceling a credit card with a letter confirming your cancellation.

9. Cut up your card as soon as you've canceled it.

10. Monitor your credit score after you cancel a card. Expect that score to take a minor hit but make sure it's recovered from that after a few months. If not, find out what's going wrong and fix it.

That's how to cancel a credit card safely. But consider keeping it unless you're struggling with overspending or paying an annual fee for a card that isn't giving you any benefits.