How To Cancel A Credit Card In 7 Steps

At some point in your life, you may wonder how to cancel a credit card. Perhaps you have a credit card account you don’t use. Or maybe the generous introductory terms on your card have expired, making the card less valuable to you.

Let’s walk through how to cancel a credit card, from a breakdown of the steps for cancellation to the impact of canceling on your credit score.

At A Glance: How To Close A Credit Card In 7 Steps

Here’s a quick summary of the steps involved with canceling a credit card. We’ll discuss these in detail later in the article.

1. Review Your Terms And Conditions
2. Pay Your Outstanding Balance
3. Stop Recurring Payments
4. Redeem Your Rewards
5. Contact Your Credit Card Issuer
6. Cut Up The Credit Card
7. Check Your Credit Report

How Canceling A Credit Card Affects Your Credit Score

Before you start the process of canceling your credit card, consider the potential impact on your credit score. The three major credit bureaus – Experian™, Equifax^® and TransUnion^® – use some specific criteria to determine your credit score. Here are a couple of factors affecting your credit card accounts, whether you’re looking at your VantageScore^® or FICO^® Score. The impact of certain factors may vary between credit scores.

Credit utilization ratio: Credit bureaus look closely at your credit utilization ratio –a percentage that represents the amount of credit you’re using at any given time versus the amount you can access. When you cancel a credit card, you lower your total available credit but may increase your credit utilization ratio depending on how much credit you were utilizing on the card you paid off and cancelled. The lower your credit utilization ratio, the better.

You can calculate your credit utilization ratio by plugging your numbers into this formula:

Total credit card balance ÷ total credit limit X 100 = credit utilization ratio

Let’s walk through an example. Your total credit limit across three cards is $10,000. You currently carry a balance of $3,000 across your three cards. You can calculate your utilization ratio as follows:

($3,000 / $10,000) x 100 = 30% utilization ratio

Length of credit history: Having a credit card for a long time and paying on time adds to a positive credit history. A history of responsible financial management can improve your credit score.

Why Account Holders Cancel A Credit Card

There are some legitimate reasons to close a credit card, even with the potential risks it poses to your credit score.

The Benefits Don’t Outweigh The Fees

Many credit cards offer rewards programs such as cash back, airline miles and other types of loyalty points. However, many cards also charge a yearly fee. If the amount you collect in rewards isn’t higher than the annual fee, you might reconsider keeping the account open.

The Terms Are No Longer Favorable

Credit card companies sometimes offer a 0% initial annual percentage rate (APR) that eventually increases dramatically after a number of months. Combined with an annual fee, the higher APR can make the card less valuable for the card holder.

The Card Is Part Of A Joint Account

People holding a joint credit card with a spouse may have to cancel the account if they divorce or separate. Allowing an ex-partner access to a credit card can create financial difficulties, especially if the situation isn’t amicable. In this case, canceling the card may be the best option.

You Rarely Use The Credit Card Account

Sometimes, people have credit cards they rarely use. They might want to cancel a card or two to simplify their personal finances or even avoid potential identity theft if they ever lost the card. It might still be a good idea to keep the card, though. Depending on how much credit you’re using, the open account might help your credit utilization ratio by giving you more total available credit. This can be beneficial when you need to take out a loan and potential lenders check your credit. Make sure to understand whether your card terms require a certain number of transactions per month to keep the account active.

You Often Overspend

Credit cards can be a vector for overspending. Canceling a card can help consumers avoid credit card debt.

An Alternative To Canceling Your Credit Card

If you’re concerned about lowering your credit score, you might be able to avoid credit card fees and subpar perks without fully canceling your card. You can start by negotiating with your credit card issuer, who might let you downgrade to a card that will be less expensive for you.

If you have a strong payment history, it’s worth trying to negotiate your yearly fee while keeping your benefits. You might even ask about lowering your APR. Be advised that credit card companies are not obligated to agree to your negotiated terms.

7 Steps To Cancel A Credit Card

If you’ve decided that canceling your credit card is the best course of action, here are the steps you should take. These steps can protect your credit score as much as possible.

1. Review Your Terms And Conditions

It’s vital to know for sure whether the costs associated with your credit card account supersede the benefits. Weigh the perks – cash back and loyalty points, for example – against the APR and yearly fee.

2. Pay Your Outstanding Balance

Paying your balance is a must before canceling an account. This will help you avoid missing any payments and facing possible actions from collection agencies.

3. Stop Recurring Payments

Recurring payments are a great way to stay on top of your bills, but these payments can be an issue if you cancel an account and forget to cancel the recurring payment. Be sure to cancel the payments after paying the final balance.

4. Redeem Your Rewards Credit Card Perks

Don’t forget to take advantage of the rewards you’ve earned with your credit card purchases. After you cancel the account, you may have trouble redeeming your rewards, so it’s better to do so while the account remains active.

5. Contact Your Credit Card Issuer

Call your card issuer using the number on the back of your card. Explain that you want to cancel your credit card and ask for their guidance on any steps they recommend following to protect your personal finances.

Take notes, get contact information and follow up with an email. You’ll want written confirmation that the account is closed.

6. Cut Up The Credit Card

You don’t want one of your credit cards winding up in the wrong hands. To prevent possible identity theft, make sure to destroy the credit card you’ve canceled.

7. Check Your Credit Report

In the months after canceling your credit card account, it’s wise to keep an eye on your credit report and monitor any changes in your credit score.

FAQs About Closing A Credit Card

Here are a few questions people often ask about canceling a credit card.

Does canceling a credit card hurt my credit?

A closed credit card account can lower or raise your credit utilization rate and shorten your credit history. These are factors that the major credit bureaus use in determining your credit score.

Is it ever a good idea to cancel a credit card?

In cases of divorce or separation, canceling a credit card can be the right move. If you have a good credit score, a cancellation’s potential impact on your credit score may not be as important to you. In some cases, though, downgrading to a credit card with a lower annual fee or APR will be a better route than closing an account completely.

Does it cost to close a credit card?

Contact your credit card company to discuss whether you’ll have to pay a fee to close your account.

The Bottom Line: Take The Right Steps To Cancel A Credit Card

Canceling a credit card is a pretty straightforward process, but it might be worth looking into alternatives first. For example, downgrading to a card with no annual fee and/or a lower APR could be enough to justify keeping a credit card with that company for at least a period of time. When canceling a credit card is the right option, start with our 7 recommended steps.

If you decide to keep your credit card, downgrade to a new card or cancel but keep other cards open, you can download the app from Rocket Money^SM to track how much you owe on all of your cards. You can also use the app to automate monthly payments.