How and When To Cancel a Credit Card

Do you have a credit card you’re thinking about canceling? Maybe it’s one that has an annual fee or a really high interest rate. Or perhaps you just haven’t used it in a very long time.

In this article, we’ll talk about how to know when you should — and should not — cancel a credit card. Then, we will discuss how to cancel it if that’s what you decide you need to do.

This article was updated in May 2023 and I review it every six months. Detailed notes on all updates can be found here. 

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When You Should Cancel a Credit Card

First of all, we should be clear that there really aren’t any hard and fast rules about when you should cancel one of your credit cards.

In fact, it’s usually not the best decision: Canceling a card can, at least temporarily, hurt your credit score. But there are two big financial reasons why you might want to shut down one or more of your cards for good.

1. Your Credit Card Is Costing You More Than It Rewards You

If you have a credit card that charges an annual fee, consider canceling it if the value the card provides doesn’t outweigh that fee.

Most cards with annual fees have pretty generous cash back or travel rewards associated with them.

Add up the total cash value of the benefits you receive from your card and compare that against the annual fee. You might find that paying the annual fee is well worth what you get in return.

If you can’t justify the annual fee based on the rewards, you should consider canceling the card — but not before you consider the potential impact on your credit, which we’ll talk about shortly.

2. Having the Card Is Leading You To Spend More Than You Should

The second big reason to consider closing a credit card account is if having that card makes it easier to buy things you wouldn’t otherwise.

Just because you can buy something doesn’t mean you should. And you may be creating debt that you won’t be able to pay off without incurring some hefty interest charges.

If you’re someone who has a hard time controlling your spending, more credit may not always be a good thing. However, before you cancel your card, consider less drastic options such as simply cutting up your physical card or literally freezing it.

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Consider the Impact on Your Credit Before Closing a Card Account

Once you’ve decided that a credit card is detrimental to your finances, you have to consider the effect that canceling that card would have on your credit score.

Your credit score is calculated using five key components:

• Payment history (35%)
• Credit utilization (30%)
• Length of credit (15%)
• New credit (10%)
• Credit mix (10%)

Closing a credit card account could impact three of these: credit utilization, length of credit and credit mix.

Credit Utilization

Your credit utilization rate is the percentage of credit that you have available compared to your credit card balances. For example, if you have three credit cards with a $10,000 limit in total and you owe a $4,000 balance across those cards, your credit utilization rate is 40%.

As far as credit scores go, the lower your credit utilization rate, the better.

“A ratio of less than 30% is acceptable,” says U.S. News and World Report credit card expert and consumer finance analyst Beverly Harzog, “but closer to 10% helps to boost your score.”

Closing a credit card can hurt your credit score because you could raise your credit utilization rate by reducing the total amount of credit you have available.

In our example above, if one of those three cards had a $5,000 credit limit and that’s the one you cancel, your utilization rate will jump from 40% to a whopping 80%. That will almost certainly have a negative impact on your credit score.

Length of Credit

Another thing to consider before you cancel a card is how long the account has been open.

The longer you’ve had a card, the bigger the impact it makes on your credit score. If the card you’re considering canceling is one that you’ve had for many years, you may not want to close it.

You should consider keeping credit cards with substantial history if you don’t have other, longer-held credit cards.

“When you close a credit card account, your history will eventually fall off your report,” says Harzog. “But that could take up to 10 years, so you won’t see a negative impact related to your length of credit history right away.”

Credit Mix

Less important, but still a consideration, is your credit mix.

People who have different types of credit — credit cards, a mortgage, a car loan — are viewed more favorably than those who have just one kind.

If you are considering canceling the only credit card you have in your name, think twice. Your score could see a minor ding without it in the mix.

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Before Canceling a Card, Consider Asking for a Downgrade

If you’re considering canceling a card because you can’t justify its annual fee, call the credit card issuer and see if it’s possible to downgrade your card to one without a fee. That strategy worked for Team Clark contributor Eric Rosenberg:

“I recently converted my old American Express EveryDay Preferred to the EveryDay card when I shifted my spending habits to a card with better rewards,” he says. “Downgrading meant I didn’t have an annual fee but could keep the account open for credit-building purposes.”

While this may not be possible in your situation, it doesn’t hurt to ask.

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How To Cancel a Credit Card in 5 Steps

If you’ve taken all of the above into consideration and decided that it still makes sense to cancel your card, there are some steps you can take to make sure you do it properly.

1. Pay the Balance in Full

Technically, you can cancel a credit card that has a balance on it, but you are still responsible for paying that balance. You won’t be able to use the card any longer, and interest charges will keep accruing until the balance is paid in full.

If you want to cancel a card but have an outstanding balance that you can’t afford to pay off, look for balance transfer offers that charge little or zero transfer fees and offer 0% interest introductory rates.

2. Redeem Outstanding Rewards

If your card was earning cash back or other rewards and you have outstanding rewards available on the card, make sure to redeem them before you close the card. If you wait until after you close the card, you may find that your reward points are no longer valid.

3. Cancel Any Automatic Charges Linked to the Card

If you’ve got any automatic payments attached to the card you’re canceling, make sure to change the payments to another source before you close the account. This will help you avoid any missed or late payments on bills.

4. Call the Credit Card Company To Cancel the Card

Credit card companies have different procedures for card cancellation. Call the issuer or check the company’s website to get its specific guidelines for closing the account. Then follow the directions exactly to avoid any misunderstandings.

5. Check Your Credit Report To Confirm Cancellation

Any time you close an account, it gets reported to the three major credit bureaus. This can take a bit of time, but after a month or so has passed, check your credit reports to confirm that the card has, in fact, been canceled. Here are several ways to get your credit report for free.

If you don’t see the account closure on your reports, call the card issuer to make sure your request was honored. If it wasn’t, you may need to repeat the process.

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Final Thoughts

In most cases, canceling a credit card isn’t necessary and can actually hurt your credit score. But if you’re tired of paying an annual fee with no returns or can’t trust yourself to use a card wisely, that may be the best course of action.

Just make sure to consider the ramifications carefully and follow the process outlined above. Then you can move on with one less thing to worry about in your life.

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