When you have a credit card that you don’t use, canceling it might seem like a no-brainer decision. This is especially true if the card has an annual fee or if you are prone to overspending. But if you’re not careful, getting rid of a card can have unintended consequences, like a drop in your credit score.
This is because credit reporting agencies look closely at the amount of credit you have access to, and deleting one of your cards can significantly reduce that amount. Fortunately, there are ways to reduce the damage or even avoid it altogether. Here are five simple steps to canceling a credit card, the right way.
Steps to Cancel a Credit Card
1. Pay or transfer the remaining balance
It is possible to close a credit card if you still have a balance on it. You will still owe the money, but you will no longer have access to the charge on the credit card. For this reason, it’s usually best to pay the balance in full before canceling. This will ensure that the account will appear on your credit reports as “paid as agreed”.
If the balance is too high, consider transferring it. Currently, the best balance transfer cards offer up to 21 months interest-free on transferred balances. Note that this type of card usually requires good or excellent credit. You will also pay a balance transfer fee, usually between 2% and 5% of the total amount transferred.
Is it sometimes a good idea to cancel before paying your card in full? It’s possible if you’re the kind of person who would benefit from avoiding the temptation to rack up more expenses by paying off what you owe, says Kenneth Chavis IV, financial planner at Los Angeles-based wealth management firm LourdMurray. “It’s a behavioral debt management strategy,” he explains.
2. Spend or transfer rewards
Points and miles from co-branded hotel and airline credit cards will remain in your rewards program account even when you cancel the card. However, this is not the case with general rewards cards like the Chase Sapphire Preferred or American Express Gold. You will need to spend or transfer these rewards to avoid losing them.
You can usually transfer your points to the issuer’s airline or hotel partner. Keep in mind that transfer times can vary significantly. While most programs allow instant transfers, others can take up to 14 business days to transfer your rewards.
3. Contact your bank
Call your bank or contact them through their online message center and let them know you want to close your credit card. Be sure to request written confirmation of your closed account status and remaining $0 balance. This way, you will have proof in case the bank incorrectly reports the account closure to the credit bureaus.
4. Check your credit report
The bank is unlikely to immediately report your closed account. Give it four to six weeks and check your credit report to ensure that the account is marked as closed at your request and paid as agreed. Contact your credit card issuer if this is not the case and file a dispute with the credit bureaus if the bank does not correct the error. Note that correcting an error with one credit bureau may not affect your credit reports with other bureaus. For this reason, it is best to go through the dispute process with each office separately.
5. Discard the card
You can destroy a plastic credit card using scissors or a paper shredder. If you have a metal credit card, mail it back to the credit card issuer. Your bank can send you a prepaid envelope at your request. Alternatively, you can simply return the card to a local bank branch.
Does canceling a credit card hurt your credit?
According to popular credit advice, canceling a credit card is a bad idea because it can hurt your credit. Closing a card can negatively impact your credit usage, the second most important credit factor after payment history. A credit utilization rate is the percentage of available credit that you are using. You want to keep this number below 30% to avoid losing credit points.
Let’s say you have two credit cards with a credit limit of $2,000 and a total of $500 in credit card debt. Your credit utilization rate is 25%. If you close a card but your balance stays the same, the ratio will drop to 50%. In this scenario, your credit will likely suffer damage.
Fortunately, there are ways to lessen that damage, according to Beverly Harzog, author of five books on credit and personal finance. First, if you have another credit card, you can try requesting a credit limit increase to compensate for the loss of available credit.
However, it’s best to only do this if you’re in good standing on your card to avoid the opposite result: a credit card issuer may look into your case and decide to lower your credit limit instead. “I always say don’t draw attention to yourself if you can’t stand up to scrutiny,” Harzog warns. “If you’ve had a sloppy payment history, don’t try this.”
If you canceled a card because it didn’t fit your spending habits, you can also apply for another one. If you get a similar or higher credit limit, you can mitigate any reduction in your credit score. If you’re looking for a new map, check out Buy Side’s picks for the best cash back and best travel credit cards—two of the most popular categories.
Can I cancel a credit card I just applied for?
You can cancel a credit card at any time. If you’ve applied and quickly realized the card isn’t right for you, you can close the account. Keep in mind, however, that a credit card application triggers a thorough investigation of your credit file, which can cost you credit points. The request stays on your credit for two years and impacts your scores for one year whether you close the card or not.
If you open a card just to get a sign-up bonus and cancel it after you’ve earned and spent the rewards, this is a practice known as “credit card churning.” Although it’s not illegal, it can hurt your credit if you frequently unsubscribe due to all the tough requests.
Plus, lenders also notice this type of behavior and may become skeptical when you apply for more credit, says Yanely Espinal, outreach director at Next Gen Personal Finance, a nonprofit organization offering a personal finance program for teachers. colleges and high schools.
“It makes them think that maybe your financial reputation isn’t that strong because you’re borrowing money from so many different people at the same time,” she notes.
Should I cancel my credit card?
How many credit cards do you keep depends on your buying habits and your willingness to play the points game. There may be valid reasons for getting rid of a credit card, but it’s a good idea to consider alternatives first.
For example, if the card does not offer enough value for your expenses, you can call the credit card issuer and request a product change. This means you’ll get a different credit card, but you’ll keep the same account and credit limit.
Issuers have different rules for product switches, but it doesn’t hurt to explore your options before deciding to close your credit card account. For example, Bank of America is quite flexible with product switching rules. Let’s say you don’t travel enough to justify paying $95 a year for the Bank of America® Premium Rewards® credit card. You may be able to upgrade to a cash back card with no annual fee like Bank of America Unlimited Cash Rewards. Chase, on the other hand, is stricter and only allows product changes within the same card family.
If you’re struggling with overspending, it may be good for your financial well-being to get rid of your credit card. Still, there are other options.
See if you can lock your card from your online account or mobile app, suggests Espinal. This stops all new charges while allowing previously authorized and recurring charges.
A card blocking allowed Espinal to reimburse the balance of one of its cards while avoiding adding more. “And then I was out for a drink with a friend of mine and went to try to use the credit card,” she says. “It was a little awkward…I totally forgot I had it locked, but that was a good thing because if I wasn’t planning on spending with that card, it would have been a great way to help me control myself.”
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