How to Cancel a Credit Card in a Smart Way

How to Cancel a Credit Card in a Smart Way
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Point Editorial

Despite what the movies may portray, cutting a credit card in half with a pair of scissors doesn’t close your account.  

Canceling a credit card may result in extra fees, services, and paperwork, so you should know and understand the required steps before acquiring a credit card in the first place. 

Read on to learn how to close a credit card account, how it can impact your credit, and a list of alternative strategies. 

How to cancel a credit card

Step 1: Pay off your remaining account balance. Experts recommend that you pay off any remaining amount of credit that you owe, whether you’re keeping the account or closing it. This prevents you from having to pay any additional — and likely costly — interest fees. Lingering credit card debt not only impacts your credit score, but it can be an obstacle in gaining approval for future credit accounts. 

Step 2: Redeem any rewards. Any cash-back points, air miles, or discounts earned by making purchases with your credit card will disappear once the account is closed. Closed accounts stay on your record for several years. If you haven’t used them yet, cash in before closing your account or see if you’re able to transfer those points onto a new card. Policies surrounding rewards programs vary, so contact your credit card issuer to see how much is applicable once you no longer have the card. 

Step 3: Call your bank. Phoning your bank and informing them of your wishes to cancel the card is the first step. While closing an account isn’t typically advised, it’s your choice. The bank representative will note that the credit card was closed by your request instead of by default. 

Step 4: Send a cancellation letter. While writing and sending a letter can be seen as old-school, it’s an important part of the cancellation process. This is a great way to cover your bases and ensure your credit card company knows what’s happening. Make sure you include your name, address, phone number, account number, and the details of your call with the banking representative within the letter. Having written confirmation is never a bad idea.

Step 5: Double-check your credit report. It takes a bit of time for your credit report to reflect your card cancellation, but you should still review your reports. Make sure your file says that your card was closed at your request instead of closed by the issuer, since the latter can harm your score.

You’re entitled to an annual free credit report from any of the three major credit bureaus, Experian, Equifax, and TransUnion. You can request a report from AnnualCreditReport.com as well. 

Step 6: Cut up your old card. This is your Hollywood moment, when you can dramatically cut up your cards or run them through a shredder. You should always destroy your old card once the account is officially closed.  

What happens when you cancel a credit card?

Canceling a card means that you can’t use it anymore. However, you’ll still be responsible for the outstanding balance. 

It may be better to stop using the card regularly instead of closing it completely. If you notify your card issuer that you’re looking to cancel, they may offer lower fees or the option to downgrade to a different card without an annual utilization fee. 

Before you do anything, take the time to consider how canceling a card affects you and your credit. See below for further details.

Does canceling a credit card hurt your credit?

You shouldn’t cancel a credit card account unless it’s necessary because it can negatively impact your credit score

Five main factors influence credit score calculations.

Credit card payment history

This is the single biggest determining factor of your credit score, accounting for 35 percent of the calculation. Closing an account doesn’t mean that your payment history will disappear. Late or missed payments will remain, but so will on-time payments. 

Amounts owed

This refers to any debts you have, like loans and credit card balances. It doesn’t matter if your account is closed. You’re still responsible for covering any outstanding charges you’ve made. Also known as credit utilization, this is the second most significant aspect of your score at 30 percent. 

Length of your credit history

A general rule of thumb is that the longer you’ve had a credit account, the better your credit score. While it can be acceptable to cancel a card if you can’t afford to keep it, it may be better to contact the card provider and see if you can work out more favorable terms. 

New credit

Remember that closing (and opening) credit accounts too quickly, especially within a brief period, can appear problematic in the eyes of banks and other lenders. It may look like you’re desperate, and neither party will be ready to jump into a relationship with you. They’d probably prefer not to invest in such a risk.

Credit mixes

New credit accounts and the diversity of your credit each make up 10 percent of your overall score. Having credit cards, a mortgage, and student loans demonstrates to creditors that you’re capable of managing different forms of credit. Not only does this boost your score, but it improves your chances of getting approved for future ventures. 

Valid reasons to cancel a credit card

As previously touched upon, there are indeed instances where it can be beneficial to cancel a credit card instead of keeping the account active. This can include: 

Separation or divorce

If you have a joint account with your spouse and the relationship ends, close the account. While this account is open, you’re still partially responsible for any purchases made with the card. To avoid any potential acts of malice following the separation, canceling the account may be for the best. You won’t have to worry about dealing with spiteful charges. 

High annual fees

Annual fees aren’t uncommon for credit cards, but they can get out of hand. If your credit card company isn’t willing to compromise and waive or reduce the fee, closing the account can save you money. 

Too much temptation

Despite all the perks of owning a credit card, like convenience and simplicity, spending outside of your means is always tempting. You’re borrowing the money to make purchases until the billing cycle begins, so it can be easy to disassociate and use too much of your total available credit. If you’re unable to resist, perhaps leave your card at home when you go shopping and use a debit card or cash, or you can ask a family member to hang onto your card.

Alternatives to canceling your credit card

One: Put the card in a drawer. In other words, stop using it as often or stop using it completely. By putting your card out of sight, you won't be as tempted to use it, but you’ll keep your account open, which can help your credit.

Two: Find another way to handle mounting debt. Give your credit card issuer a call and see what they have to say. Perhaps they’ll be open to negotiating your fees. Applying for a balance transfer card or a smaller personal loan so that you can start paying off your debt are additional options. Balance transfer cards allow you to amalgamate all your existing debt into a single monthly payment. They usually come with a low introductory APR rate. Alternatively, personal loans, while typically smaller in volume, can be easier to obtain. 

Three: Downgrade your card to avoid an annual fee. While you may not earn specific rewards or have as high of a credit limit, the yearly membership fees will be more reasonable.  

Credit card alternatives: Point Card

Alongside the methods discussed, there are other options if you’re debating on closing your current credit card account. Instead of forgoing a traditional credit card or downgrading to a more affordable yet more restrictive card, there’s another smart choice for you to consider: Point Card.  

Designed as a transparent, easy-to-use alternative payment card, Point allows cardholders to exercise fiscal independence and spend their own money while receiving exclusive benefits. This includes unlimited cash-back and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases. 

You work hard for your money, and Point works equally hard for you in return. In addition to Point’s rewards program, all users are eligible for Point’s built-in safety measures, all of which designed to aid you as you work to build your wealth and maintain it. They’ll protect your financial well-being, too. Car rentals, phone insurance, travel insurance, fraud protection with zero liability, and no interest rates are just some of these bonus features. 

Finally, no credit check is required. If you’re looking to protect or boost your credit, you can rest easy knowing that Point has your back every step of the way.

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Point Editorial
A group of writers, thinkers, & designers from varying backgrounds — all part of the Point Card team. Sharing perspectives on concepts in design, finance, and culture through an everyday lens.
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