It’s not unusual to outgrow a credit card that no longer meets your financial needs. Whether it’s a student credit card with a $500 credit limit from college or a rewards card with an unreasonably high annual fee, it’s time to cut ties. And though you don’t find value in using the card anymore, closing a credit card can negatively affect your credit score.
Contrary to what social media might have taught you, canceling a credit card involves more than just destroying the physical card and tossing it into the trash. Closing a credit card account could hurt your credit score because it affects the length of your credit history and your credit utilization rate – the total balance you carry versus your total available credit. But if you prefer to ditch your credit card, there are a few critical steps to close an account properly. We’ll walk you through how to cancel a credit card without damaging your credit, and how to know if canceling your credit card is really worth the hassle.
How canceling a credit card affects your credit
Before you cancel a credit card account, it’s important to know the potential benefits and repercussions to doing so. Closing a credit card can negatively affect your credit score in two ways -- by changing the length of your credit history and affecting your credit utilization ratio -- two factors that help determine your credit score.
“Typically, immediately following closing a card, you will see your score go down, although over time, it may have a negligible impact,” said Matthew Goldman, a credit card industry expert.
It changes the length of your credit history
The length of your credit history -- which includes the age of your oldest and newest cards and the average age of all your cards -- makes up 15% of your credit score. Having a longer credit history can boost your score.
“If you have three cards at 10 years, five years and one year, and close the 10-year card, your average will drop as the account age shrinks,” said Goldman. “If you close the one-year card, your average can increase. In this way, closing a very old card is not recommended due to the higher impact.”
While Goldman recommends that you hold onto your oldest card forever to avoid bumping down your credit score, keep in mind that a closed credit card in good standing will still stay on your credit file for 10 years, giving you some wiggle room to increase the average age of all your remaining cards. But a closed account in bad standing or with a negative history can adversely affect your credit for seven years.
It can raise your credit utilization ratio
Canceling a credit card can hurt your credit by increasing your credit utilization -- the ratio of your outstanding credit balances divided by your total credit limit. If your credit utilization percentage is high, you appear riskier to creditors and lenders: It’s a warning signal that you might be in financial hot water or have problems keeping up with your bills, so you’re resorting to plastic.
“The reason it usually goes down is that credit utilization is an important factor in most scoring models,” said Goldman. “If you close a card, your overall credit availability will decrease by the amount of that card’s limit.” So if you have $20,000 in available credit across three cards, then cancel a card with a $10,000 limit while maintaining a debt of $5,000 on the other two, your credit utilization ratio will go from 25% up to 50%.”
Credit utilization makes up 30% of your credit score, so it’s important to keep your available credit as high as possible and your debt as low as possible to maintain a healthy credit score. A good rule of thumb is to keep your credit utilization under 30%, though most credit experts suggest trying to keep the percentage in the single digits.
When to cancel a credit card
So is it bad to close a credit card? Not necessarily.
No one wants to pay for something they don’t use. “If you are paying an annual fee and underutilizing the card, you should close it,” Goldman said. Oftentimes, the conditions of a card make it unfavorable, like if it gets a higher interest rate. Or sometimes we no longer have use for a particular card, like one based on frequent travel on a specific airline. “Our lives change and the card doesn’t make sense,” Goldman explained.
While it could put a dent in your score, there are a few instances when it might make sense to close a credit card:
- The card has a high annual fee or interest rate. It might make sense to cancel a credit card if it has a high APR or high fees, such as annual fees, late payment fees, over-limit fees, overdraft fees and so on. If you don’t use a card with a costly annual fee often, or the interest rate is well above your other cards, it may be too expensive to keep in your wallet.
- You don’t use the card responsibly. If your balance keeps increasing and incurring interest, canceling your card might be the smartest move to avoid digging yourself into debt. (Just make sure to pay off your outstanding balance first, see below)
- The card doesn’t match your lifestyle anymore. You might end up saving money if you cut ties with a credit card linked to an airline you no longer travel with, or a credit card with a foreign transaction fee interfering with your travels abroad.
- You recently separated from your partner. If you had a joint credit card account with a former spouse or partner, then closing your credit card could help keep your finances straight and avoid unwanted charges.
- You have outstanding debt. If you have outstanding debt that you can’t pay down or are getting on a debt management plan, you might be required to cancel your credit card accounts. While your credit score will likely take a hit, closing these accounts might help you regain your financial footing.
How to close a credit card account the right way
If you do need to cancel a credit card, there’s a process you should follow.
1. Check your credit report
Before you close your card, check your credit report for any errors. You can order a free report every 12 months from each of the three credit bureaus -- Equifax, Experian and TransUnion -- from AnnualCreditReport.com.
If you see any mistakes in your account history, such as wrongly reported late or missed payments, you can file a dispute. The credit bureau has 30 days to review and respond to your dispute.
Once you’ve closed your account, review your credit report again for errors. Common errors might include an account showing up as open and active even after you closed it, or your credit report missing the “Closed by grantor” notation, which verifies that the account was closed by the creditor.
2. Pay off or transfer your balance
To cancel your card, your balance must be paid in full. Otherwise, you’ll need to keep it open until the balance is zero, or transfer the balance using a balance transfer credit card. A balance transfer card can come in handy if you want to pay off a high-interest balance by moving it to a card with a 0% intro APR period.
3. Redeem any existing rewards
Any rewards points you earned while using your card will likely vanish once you close a card, so try to redeem your rewards before you cancel. Depending on the card, you might be able to transfer your points to another card or cash-back rewards program.
4. Transfer automatic payments to a new card
If you use your credit card for automatic bill payments, replace it with another method of payment to avoid possible fees or penalties.
5. Call the credit card company
To officially cancel, call the number on the back of your card and confirm that you no longer have a balance. Once the customer service representative verifies your account’s zero balance, you can request to close your account. Depending on the issuer’s policy, you may be able to do so over the phone or online. The customer service representative may try to entice you with attractive offers to keep your card open, but if you want to proceed, ask for the cancellation to be completed.
6. For extra protection, send a letter of cancellation
Though not required, you can send a certified letter to the credit card issuer that documents you have canceled your card. When you’re on the phone with the customer service representative, ask them for the best address to send the letter, and ask the issuer to provide written confirmation that your balance is zero.
7. Safely dispose of your card
Once you’ve properly closed your account, it’s safe to get rid of the card by shredding it and making sure the sequence of numbers is unrecognizable. You can return metal credit cards back to the issuer in the mail.
Alternatives to consider
If you don’t want to cancel your credit card and hurt your credit score, here are a few other options to consider:
- Negotiate a lower rate. If a high APR is the impetus for closing your account, contact the card issuer and try to negotiate a lower interest rate. You’ll have a stronger chance if your account is in good standing.
- Downgrade to a card with no annual fee. If you want to cancel a card due to its high annual fee, look into a card with the same issuer with no annual fee. Downgrading can help you avoid canceling the card altogether, and save you money if you’re trying to dodge a costly annual fee.
- Transfer the balance to a card with a 0% intro APR. To save money on interest, look into transferring the balance to a card with a 0% intro APR period. If you know you’re able to pay off the balance before the introductory rate ends and the standard rate kicks in, making the transfer could give you some breathing room to tackle your debt. Note that there’s often a balance transfer fee, which is a percentage of the amount you owe on the card, so you’ll want to do some math to see if it’s worthwhile.
- Keep the card open, but use it sparingly. If you want to keep your card open, designate a specific use for it on occasion. Set limits on how much of a balance you can keep on it, or pay your bill in full each month. To keep your account active, make a small purchase every so often and pay off the balance. Goldman recommends setting up autopay for an easy-to-monitor monthly subscription such as Netflix -- that way, the card can continue to report positive payment behavior. Inactive accounts can be closed by the creditor.
Should you cancel a credit card?
Canceling a credit card when it’s costing you too much money or hurting your credit score can be a smart move in the long run. However, canceling a credit card typically hurts your credit score, so if you’re going to close your account, do it in a way that minimizes the damage to your credit file. Weighing the pros and cons can help you make the best choice for your financial situation.
The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.