How to cancel or close a credit card

  • How to cancel a credit card

  • Does closing a credit card hurt your credit?

  • Should I close my credit card?

Many Americans use credit cards, but for some folks, one of their cards is no longer the best fit for them or they have a hard time keeping their spending under control.

About 24% of credit card accounts are dormant, according to the latest data from the American Bankers Association, while another 41% of accounts have revolving balances, which is debt that is carried over from one month to the next.

According to Experian, the average consumer shoulders about $5,589 in credit card debt as of the fourth quarter of 2021. Credit card balances jumped 13% in the second quarter of 2022, the New York Federal Reserve reported, its largest quarterly increase in 20 years.

If you find your credit card no longer useful to you or has become too expensive to keep up with, closing your credit account can seem like the right choice. But it’s not a choice to be taken lightly, since a closed credit card account can affect your credit score for years to come.

“One of the things that we would ask consumers to think about when they're canceling a credit card is what that credit card means to their credit score,” Francis Creighton, president and CEO of the Consumer Data Industry Association, told Yahoo Money. “People should make the right decision based on their own personal financial picture.”

Here’s what to know.

An air traveler uses a credit card to pay for items at a retail shop in John F. Kennedy International Airport in New York City. (Credit: Robert Nickelsberg/Getty Images)
An air traveler uses a credit card to pay for items at a retail shop in John F. Kennedy International Airport in New York City. (Credit: Robert Nickelsberg/Getty Images)

How to cancel a credit card

If your mind's made up and you’re set on closing your credit card account, here are four steps you should take to do so.

Step 1: Pay off your remaining balance

The first step to cancel your credit card is to pay off your outstanding balance. While you aren’t required to pay off the amount owed before closing an account, it’ll be in your best interest to do so. If you close a credit card account with a leftover balance, your card issuer will still charge you the owed amount with interest until the full balance is paid off.

Keep in mind that a single late or missed payment can hurt your credit score. Missed payments will also show up on your credit report within 30 days of the late payment. You’ll also have to pay late fees if you don't pay on time.

If you can’t pay off your card before closing your account, you should at least minimize your balances as much as you can. And remember to keep paying at least the minimum monthly amount to avoid any derogatory marks on your credit.

Step 2: Redeem unused rewards

Before closing your credit card account, you’ll want to redeem any unused rewards on your account. Once you cancel your card, these rewards may no longer be available to use. In fact, in some cases, rewards may help you pay off your balance.

Before closing your credit card account, make sure you take advantage of your points or cash-back rewards. Once the account is closed, you won't be able to redeem them. (Credit: Getty Creative).
Before closing your credit card account, make sure you take advantage of your points or cash-back rewards. Once the account is closed, you won't be able to redeem them. (Credit: Getty Creative).

Step 3: Call your credit card company

Once you’re sure about your decision, call your credit card issuer and request a credit card cancellation. Your card company’s contact information is generally found on the back of your card.

Furthermore, you should request your lender to send you written confirmation that the account is closed as well as account information regarding any outstanding balance or paid debts. After this is finalized, you can destroy your card by cutting it in half.

Step 4: Check your credit report

After you’ve closed your credit card account, you should take a look at your credit report to ensure your account has been reported as closed. Also make sure that the reason for the closure of your account is because you requested the cancellation. A different reason, such as ‘closed by issuer,’ can hurt your credit score.

You can also take a look at your credit report weekly for free from each of the three credit bureaus — TransUnion, Experian and Equifax — through the end of 2023 at AnnualCreditReport.com.

“Everybody should be checking their credit report all of the time, we want people to look at their credit report so they understand where they sit,” Creighton said. “They can make sure there’s no fraud or any incorrect items. But most importantly, they can see how many credit accounts they have open.”

After you've closed your credit card account, you should request a statement from your credit card issuer that identifies if the balance on account was paid off or if you still have a debt. After doing so, you should destroy your card. (Credit: Getty Creative)
After you've closed your credit card account, you should request a statement from your credit card issuer that identifies if the balance on account was paid off or if you still have a debt. After doing so, you should destroy your card. (Credit: Getty Creative)

Does closing a credit card hurt your credit?

Closing a credit card can be the right choice under some circumstances, but there are some misconceptions about how a closed account could impact the age of your credit’s length of age and by default your credit scores.

For instance, FICO often calculates your credit score based on both open and closed credit accounts. That means that if you closed an older credit card account, it won’t put a dent on your length of history or scores.

The same can not be said for other credit scoring companies. VantageScore may not include some closed credit card accounts when calculating credit age and that could hurt your credit score – especially if your closed line belonged to an older account.

That being said, a closed credit card account will show up on your credit report for an average of 10 years if you made on-time payments. According to Experian, if you missed payments or had any hiccups that led up to your account being closed, that evidence will remain on your report for seven years.

Before closing your credit card account, experts recommend paying off any owed balances. (Credit: Getty Creative)
Before closing your credit card account, experts recommend paying off any owed balances. (Credit: Getty Creative)

The second factor you should consider before canceling your credit card is your current credit utilization.

Your credit utilization is one of the “most influential factors” that help calculate your credit score, Creighton said, and can impact up to 30% of your credit score. Credit utilization is the amount of your available credit that you use both per revolving account and across all of your revolving accounts. The lower the percentage, the better for your credit score.

For example, if you charge $100 on a credit card with a $500 credit limit, your utilization rate is 20%. If you only charge $50 on that card, then your utilization rate would be lower at 10% ($100 in charges divided by the $500 credit limit) and help your credit score more.

The same is true across your accounts. Take this example:

Credit Card 1: $1000 credit limit with $200 in charges

Credit Card 2: $1000 credit limit with $300 in charges

Credit Card 3: $1000 credit limit with no charges

Across the three accounts, you have $3,000 in available credit and you have $500 in outstanding balances. Your utilization rate is almost 17% ($500 in charges divided by $3,000 in limits). If you close Card 3, then your utilization rate jumps to 25% because you have the same amount in outstanding balances but lower total credit limits.

So, when you close a credit card account, the amount of credit that’s available to you will shrink. As a result, your credit utilization rate may increase which may put a dent on your score.

“Keeping your balances low on your credit score is essential to having good credit scores,” Rod Griffin, senior director of Public Education and Advocacy for Experian, told Yahoo Finance. “That’s important because a good credit score results in lower interest rates, lower fees, and other financial advantages that you definitely want to take. Good scores mean savings.”

A customer uses a credit card terminal to make a purchase at The Donut Man inside Grand Central Market on March 11, 2022 in downtown Los Angeles, California. (Credit: Patrick T. Fallon, Getty Images)
A customer uses a credit card terminal to make a purchase at The Donut Man inside Grand Central Market on March 11, 2022 in downtown Los Angeles, California. (Credit: Patrick T. Fallon, Getty Images)

Finally, consider your payment history. A closed account that’s in good standing – meaning your debts are paid off and were on time – will stay on your credit report for 10 years and help your credit score. But if your closed account was negative, it will remain on your credit report for a total of seven years, while also hurting your credit score. If you keep the account open and begin making on-time payments, that account will eventually help your credit score.

“The credit score shouldn't be dictating your financial decisions, but your credit score should influence your decisions and should be part of the conversation as you go forward,” Creighton said. “These are factors that people should consider when closing an account. They shouldn't dictate, but something to keep in mind.”

Should I close my credit card?

Credit cards can be an easy way to build your credit by making on-time payments. They can also be incredibly convenient, helping you take care of an unexpected expense such as a flat tire or everyday expenses like purchasing groceries. But it’s not free money, and your debts can snowball out of control rather quickly if you’re not responsible.

If you’re feeling like a credit card isn’t for you, consider talking to your credit card issuer before choosing to close your credit account. Your bank may be able to help you find an alternative to closing your account, such as lowering your credit card interest rate, offering you a new payment plan, or offering you a different credit card that meets your needs.

“It’s good to have one or two credit cards, you don’t have to have 15 or 20,” Griffin said. “That can be good from a credit card management perspective. If you have one card that gives you the incentives that you need, whether it’s cash back or discounts on purchases – you can use that card to give you a financial advantage.”

“For example, if you use one card to make your purchases, it can help you track those purchases and manage that debt because you know exactly where all of it is,” Griffin added.

Second, remember to consider how thick your credit history is. For instance, if your credit history isn’t as lengthy and your future plans involve purchasing a home or buying a car – you should think twice before canceling your credit card account.

“You want to make sure you have some credit, so that you can keep a file open,” Creighton said. “Otherwise, you might slip into what we call a thin file consumer. What people may call an invisible consumer. Again, every consumer is different. Just something to keep in mind – maybe there are good reasons to keep a particular account open.”

In a nutshell

“It’s not a one-size fits all,” Creighton said. “If having more credit cards means that you find it easier to spend money that you don't have – by all means cancel a credit card.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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