Have you been considering canceling a credit card? There’s a lot to consider when it comes to making that decision. You probably have questions about the process and consequences of closing a credit card and we're here to help, so let’s go over some helpful information.
Why Would You Close a Credit Card?
While it’s best to keep your credit cards open, there are several reasons why you may consider closing a credit card. It could be that your personal situation has changed – experiencing separation or divorce is a common reason for closing a credit card as a couple moves to separate finances. Paying high annual fees or receiving inaccessible rewards could be another reason you may want to close the card.
How much or how little you currently use your credit card can also push you to close your card. If the temptation to utilize your card beyond your means is too much, you may be considering closing the card to help prevent your spending. In contrast, if you aren’t using a card enough, you may be tempted to close the card, though we have some reasons why you may want to reconsider.
Why Is It Bad Close a Credit Card?
Choosing to close a credit card can have a negative impact on your credit score. This is because your credit card is tied to your credit utilization. Used by the major credit bureaus, this ratio looks at how much credit you have available to you and how much of that available credit that you are actually using.
By keeping your credit card open, especially if you don’t use it, you’ll keep your credit utilization ratio much lower as that unused credit card limit will count towards your available credit. This is also why closing your credit card can hurt your credit score. Closing the card will lower your available credit and increase the ratio of how much of your credit is being utilized, which in turn will lower your credit score.
What to Do When Closing a Credit Card
First, evaluate why you’re considering closing your credit card and see if there are any other solutions. If you’re dealing with high annual fees, it could be worth reaching out to your lender to see if any fees can be waived or if the card can be downgraded to a fee-free card. If you’re struggling with the temptation of using the card, a solution could be to remove the card from your wallet and store it in a different, safe location.
If you’ve decided to proceed with closing your card, here are the steps we recommend:
- Pay off the balance on your credit card. This is an important step as you don’t want to leave any unpaid balance on your card. If you do leave a balance, you will be still be responsible for that amount and may be unable to close the card until that balance has been paid.
- Redeem your rewards. If you have any unused rewards, be sure to utilize them as much as you are able to before they become inaccessible.
- Call the credit card issuer. The phone number for your credit card issuer or lender should be provided on your card or the statement. This is a great time to confirm that you’ve paid off your balance and any fees you may have on the card. To get started, just let them know that you would like to cancel your card and they’ll be able to provide you with information on how to complete the process.
- Follow up with a letter. It’s good to follow up with the credit card issuer to confirm your card cancellation. This can be done either by certified letter or via email. We recommend doing this and requesting a letter confirming the balance and closure of the card for your records.
- Verify your credit reports. For this step, you’ll likely have to wait until the closure has been reported to the credit union which can take anywhere from 30 to 45 days. Once that time has passed, you’ll want to check your credit report to ensure the balance has been adjusted to $0 and that the card has been closed. If the credit report is inaccurate, you will need to dispute that information with the credit bureaus.
- Destroy the card. Whether you choose to shred or cut up your credit card, it’s important to destroy your card so that the card information cannot be stolen.
Closing a credit card can be tempting but be sure that you’re closing it for a good reason. If you cannot find an alternate solution that works for you, ensure that you’re following the appropriate steps to closing your card to minimize any negative impact on your credit.
