Many people wonder how to cancel a credit card without concern about the side effect of it. Canceling a credit card will damage your credit score. Canceling credit card drastically changes your credit utilization ratio. The ratio in your credit report is basically the credit you tap versus the total credit limit you own. The more available credit you use, the worse the impact will be. Also, your average age of accounts in credit history component of credit score will take a hit.
But, there are some good reasons to cancel your credit card beyond that. For example, if you can’t resist the temptation of buying things with your credit card. Or, your card issuer charges you high annual fees, with not much rewards and not good enough miscellaneous benefits.
Most people do not realize that they have the right to close credit card whenever they want. One thing that you should keep in mind when it comes to credit card cancellation is that some companies may make it difficult for you.
When you use your credit card, the credit card companies expect you to have an outstanding balance after due date. So, they earn from your interest. On the other hand, they earn from merchant charges too when you use your card at a point of sale.
Sometimes, these companies will charge you for a service that you can do for yourself. Let’s quickly see how to cancel your credit card with these simple steps
1. Pay Off Outstanding Balance
You need to know how to cancel your credit card with an outstanding balance. The credit card issuer is going to pursue your debt. It is difficult to cancel credit card with an outstanding balance. It is also not advisable, especially when you have a good credit report.
Your credit score will drop immediately if you have outstanding balance. Don’t worry, you will get your score back up to a respectable level if you pay the balance.
You either have to pay down the balance or do a balance transfer to another credit card. You can either use debt avalanche or debt snowball method. Pay off the smallest debts first (avalanche), before you can finish the more massive debts. On the other hand, with snowball method, you pay off the highest interest debt first, irrespective of the balance.
If you ignore debt, even if it’s a small debt, your score will start to take a hit. And, you can’t close your credit card. Once you are out of debt and can make your payments on time, your credit score will come back up. You just need to create a debt repayment plan and execute it.
When you don’t have any debt, then you can close your credit card. Debt consolidation companies may help you in negotiating out of debt if you are in a bad situation. They will formulate a clear plan to attack your debt and get your credit back in good shape.
2. Utilize Remaining Credit Card Rewards
Don’t forget to check your points to get your credit card rewards. Redeem those points into cash back, take gift cards, or buy a flight ticket. Drain your points until zero, before you process the account closure. You can’t redeem your remaining points, cashback, or miles after you cancel your credit card.
Review your card’s reward program to know the redemption terms. You can transfer points to airline loyalty programs or hotels to your spouse with the same last name or member of family in the same household. If you have a few miles to redeem your rewards, you can talk to the credit card company to exchange your accumulated miles.
Much better, if you earn flexible rewards where you can freely move around points even if you have to close one credit card. Flexible rewards like Chase Ultimate Rewards program or American Express Membership Rewards program can be a good choice. Let’s say, you close a Chase Sapphire Reserve since the annual fee is too much, you can still downgrade it to Freedom and continue accumulating Ultimate Rewards from Chase.
Just make to always utilize remaining credit card rewards before cancelling credit card. I don’t like leaving money (credit card points) on the table.
3. Call The Number On The Back Of Your Card To Reach Credit Card Customer Service
Check the back of your card to reach the credit card customer service. They will help you if you have any problems that may be related to your credit card account.
You need to confirm your credit card’s balance if the balance is zero because you already pay all your bills and ready to cancel your credit card. Ensure your cancellation by giving notes on why you decide to close your credit card. You have the right to close your account anytime after making the credit card issuer whole on the balance.
Many credit card issuers want you to request credit card closure through phone. Although, you can initiate the closure process online in some cases.
If the back of your card number is not helping you reach customer service, check your latest credit card statement for the number. They will definitely intimate you in multiple channels if their numbers are changing, but that’s a rare reality.
How To Cancel Credit Card Through Phone?
Remember, there is generally a long wait to get hold of a representative on phone. Once you connect with the representative, you just want to let them know you called to close your credit card account.
Just be prepared to confirm identity details and one time password to the contact number on file. You may otherwise need your full account number, so it also helps to have the most recent credit card statement while calling them.
Just make sure to have a pen and paper or your laptop open, so if the rep gives you any closure reference number to call further and fast track case. It is generally a good idea to note down the time and date of your call for further reference.
The representative is going to ask you why you are closing your credit card, just tell them a random reason. You are not obligated to give the exact reason for closure. For instance, it’s easy to say you don’t use the credit card any longer or you want to simplify your credit card needs.
4. Write A Mail To The Credit Card Issuer To Confirm Closure
Once you request closure through phone, send a mail to the card issuer to confirm your account closure. Let them confirm in writing that your credit card is cancelled. This will cover you in case the service representative makes some mistake with the cancellation request.
But, make sure your mail includes your name, credit card account number, address, phone number, and your information about your cancel request. You may also want to briefly mention the summary, date and time of your cancel request call.
A good practice is to actually the most recent statement that confirms zero balance on your account.
End your mail content by requiring the credit card issuer to give a written confirmation about the credit card cancellation. Make sure to send the mail via certified delivery mail or first class mail, where you can track proof of delivery.
5. Check Credit Report Open Account And Confirm Credit Card Closure
To check open accounts in credit report, you need to go online and look out for banks providing this service for free. Discover provides free credit reports. Chase has a product “Chase Journey” to help you with credit information. Bank of America has also its free credit report information. Or, it is better to sign up third party service like Credit Karma or Credit Sesame.
Once the consumer provides SSN, address and other personal information, then they will be able to access credit report. It will contain the status of each account. They can also view details of each account.
Once the data is available, the consumer can review each account and make sure that the information in it has been correctly closed. Just because you closed credit card account does not mean it will always be accurate with credit bureaus. You need to monitor your credit carefully.
If your credit card is still active, you can contact the creditor to report the closure to credit reporting agencies. If the creditor does not respond to the request within 30 days, the consumer can file a complaint with the relevant credit bureau.
Also, dispute the information with the credit reporting bureaus. Be aware that it takes 30 days or 6 weeks max to fully have the update on credit report. So, exercise patience before filing dispute.
How Does Canceling Credit Card Affects Credit Score
When you cancel your credit card, it affects your credit score. It is okay to cancel your credit card when you have a good credit score. There will be a temporary drop in your credit score but you will able to get it back high to the same level.
When you have a credit score above 740, you may not need to worry about canceling your credit card. When canceling credit cards, you should always ask the company if they are willing to waive the annual fee or downgrade into a no annual fee cashback or rewards credit card instead.
Closing credit card will shorten your credit history, shrink your credit mix and increases credit utilization. You can ask your credit issuer to brief you details on how your credit will be affected. But, I don’t personally do that. It’s like asking your barber if you need a haircut. The answer is always going to be yes and generating business for them.
Get a free credit score and credit report from your credit issuer. At annualcreditreport.com, you can get your free credit reports from all 3 major bureaus once a year. It is advisable to utilize this option considering you lose it if you don’t exercise your right. Also, remember you can get it free only once, so utilize it wisely by requesting a different agency credit report once every 4 months.
You don’t have to use your credit card, but make sure you secure it or dispose of it properly—this reduces the risk of it falling into the hands of identity thieves.
Five Tips For Credit Card Cancellation
There are five tips for credit card cancellation that you need to know if you want to stay on top of your credit card usage.
- First, understand the impact of credit card cancellation on your credit score. Think carefully when closing your credit card will raise your credit utilization ratio to more than 30%.
- Second, you will want to pay off your card balance. The longer you are in debt, the harder it will be to get out of it.
- Third, you should keep all your credit cards separate from your wallet. When you have credit cards, you need to manage them. If one card goes missing, you may find yourself having problems with another.
- Fourth, always check the newest credit card rewards. Put them to maximum advantage for you. I have personally traveled few international trips completely free of cost through rewards from credit cards.
- Fifth, If you don’t need that credit card anymore, close your credit card and do it properly. Check the credit report, and make sure you finish all the debt.
Closing a credit card can be a detriment to building your credit score. So, make sure to wrap your mind around disadvantages of canceling credit card before you proceed.
In most cases, it is better to call the credit issuer to waive the annual fee or downgrade to no fee basic card instead of closing the card. In this case, you will maintain the age of account from that credit card. Just make sure to keep it active with small purchases sprinkled every 3 months.
Sometimes, it makes sense to close credit cards that charges high annual fees or when the rewards doesn’t benefit you at all. In that regards, it is okay to cancel your credit card.
By doing it methodically knowing all benefits and disadvantages, you can take an informed decision. Thus, you will minimize negative effects on building credit score.
I am a data analyst by profession who loves to crunch numbers at daytime and come home wondering how my passive income numbers for the day look like. I believe in being rich rather than looking rich. Follow me for Cryptocurrency, FIRE, Personal Finance, Credit Cards and Digital Nomad updates