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This article was last updated Sep 23, 2020. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
No matter how great a credit card was when you first applied for it, there may come a time to say goodbye. It may no longer be worth the annual fee, the benefits or earning power may have been reduced — or perhaps it just doesn’t fit with your spending patterns any longer.
Whatever your reasons for closing a credit card, you should follow certain processes to ensure it’s done correctly. You can’t just cut up the card and forget about it — that doesn’t eliminate any annual fees or protect you from potential fraudulent charges. If you don’t take the right steps, it could cost you money and hurt your credit score.
Let’s walk through how to close your credit card the right way.
- Will closing a credit card hurt your credit score?
- The pros and cons of closing a credit card
- How to close your credit card step by step
- Alternatives to closing your credit card
Will closing a credit card hurt your credit score?
Closing a card can hurt your credit — but not always — for two main reasons:
- It decreases your overall credit limit and increases your overall utilization rate, if you tend to carry balances on other cards.
- It reduces the average age of your credit accounts, which factors in how long you’ve been using credit. However, closed accounts stay on your credit reports for 10 years, so if you have other, active older accounts open, one closed account shouldn’t hurt too much, as long as you’re not carrying balances on them.
Your utilization is how much of your credit limit you’re using. It’s calculated both on an individual credit card basis and across all your credit cards together. Personal finance experts recommend never using more than 30% of your limits — for example, if you have one card with a $500 credit limit and a second card with a $1,000 limit, don’t spend more than $450 between the two cards.
If you close one of your credit cards, you automatically reduce your overall credit limit and increase your utilization rate. To follow on the previous example, if you were to close the card with a $500 credit limit while owing $450 on the card with a $1,000 limit, you now have 45% utilization.
Utilization accounts for 30% of your FICO Score, making it second in importance after payment history.
However, for consumers with multiple credit cards, as well as a high overall credit limit and low balances, closing one card (especially one with a lower limit) may not have much of an impact at all.
The other factor to consider is the length of your credit history, which makes up 15% of your FICO Score. Keeping your older credit cards active is typically considered a good thing, because they’re the ones that bolster your average age of accounts. But it’s worth noting that closed accounts that were in good standing will stay on your credit reports for 10 years, and will continue to impact your average age of accounts just as they otherwise would until they fall off your reports. In other words, closing a credit card doesn’t immediately hurt your length of credit history.
The pros and cons of closing a credit card
We’ve laid out a few factors to consider when deciding whether you should close your card:
Pros of closing a credit card
Avoiding an annual fee. Credit cards with annual fees typically fall into one of two camps: Those meant to help people with bad credit, and those with enhanced rewards programs and benefits. In the first case, after rebuilding your credit, you may decide it’s not worth continuing to pay the annual fee to keep the card. In the second, you may wish to cancel if it turns out the card no longer lines up with your spending habits, or if the rewards program has been devalued or doesn’t fit your lifestyle anymore.
Freeing up room for other cards. If your issuer limits the number of credit cards you can have, and you’re interested in opening up a new card down the road, closing an old card may be reasonable. For example, American Express restricts you to four consumer cards where you’re the primary cardholder (note this doesn’t apply to business cards or charge cards). Or, you may find that you’d prefer to get a card with a cashback rewards program over a travel miles or points card that you haven’t been taking advantage of.
Getting a security deposit back. When the card you’re considering closing is a secured credit card, that means you had to submit a security deposit to the issuer in the amount of your credit limit. Some secured cards offer an opportunity to demonstrate good behavior and graduate to an unsecured card, where you’ll get your deposit refunded in the process, but others do not allow you to graduate to another card. Either way, once you close a secured card, you should get your deposit back, minus any fees or balance owed.
Ending a relationship with a lender. If you opened a card with a subprime lender or a store card from a shop you don’t frequent anymore, you may decide it’s time to close the account and move on to a card that’s a better fit for your spending needs.
Cons of closing a credit card
Hurting your credit score. As outlined above, closing a credit card can damage your credit score primarily by decreasing your overall credit limit and increasing your utilization. If you make sure balances on any other cards are at or near zero, you can minimize that impact to your score.
Losing a backup card. Historically, American Express and Discover cards haven’t been as widely accepted as Mastercard and Visa cards. So, if your primary card is an American Express or Discover, it can be wise to have a backup. Having a backup can also make your life easier if one card has been lost or stolen, and you may have to wait for a replacement.
How to close your credit card step by step
If you’ve decided to go ahead and close a credit card, here are the steps to take to ensure you’re protected. These will minimize any interest owed, preserve any benefits or rewards you’ve earned and protect your credit score.
Step 1: Pay off or transfer your remaining account balance
Before closing a credit card, make sure that it has a zero balance. Know that you may be able to close the card with a balance, but you won’t have charging privileges once you close it and will still be required to pay the balance off over a specified period of time.
You can also consider transferring the balance to a new credit card with a 0% APR promotional offer to zero out the balance on the card you want to close.
It’s important to know that sometimes you may think you’ve paid off a balance when, in fact, there are residual interest charges that will appear in the next billing statement. So continue to check your statements a month or so after you pay it off to ensure your balance is truly $0.
Step 2: Redeem any rewards you’ve accumulated
You’ve diligently used your credit card to earn miles, points or cash back from your spending. Airline miles and hotel points typically transfer shortly after your statement closes each month to their respective loyalty programs. If you close your credit card before the statement closes, those rewards you racked up in the previous month won’t transfer to your loyalty accounts.
Cashback rewards and bank-specific points programs are treated differently. These rewards typically require your account to be open in order to redeem points and cash back. Some banks give you a short window of time after your account closes to redeem your rewards: For example, Citi ThankYou Points offer a 60-day window in which you can redeem or transfer your points to partners after closing your account.
If you have a stash of points, then redeem them for either cash back, statement credits or travel, merchandise or gift cards before you close the card. Some travel rewards programs also allow you to transfer miles and points to different airline or hotel loyalty programs, too, which may be an option you want to explore before closing out the account.
Step 3: Use your credit card benefits
Some high annual fee credit cards offer valuable perks you don’t want to go to waste. These perks may include Global Entry or TSA PreCheck credits, annual travel credits, retail credits and more. Review your account benefits online or by calling the bank, then use these perks before closing your account.
Step 4: Move all automatic charges to another card
Many cardholders have automatic charges that post to a credit card for convenience. However, this requires a little bit of work when you cancel a credit card. You’ll need to update all of those merchants with new debit or credit card information.
If you don’t cancel or change these automatic charges, you risk your subscriptions being canceled or being charged a fee if your payment does not go through on the closed credit card.
Step 5: Contact your bank
Call your bank or go to your card’s online portal to let them know that you’d like to cancel your credit card. They may cancel it right away or they may offer you incentives or review your credit card’s benefits in an attempt to keep your account open. If you’re not interested, reiterate your desire to close the account.
Step 6: Email a cancellation letter
Having written confirmation ensures that there are no misunderstandings. Find your bank’s customer service email address listed on your card’s website and write that you are closing your credit card at your request and include the card details, such as credit account number and your name as it appears on the card.
Step 7: Check your credit report and credit card statement
The closed credit card will not reflect on your credit report immediately. Set calendar reminders for 30 and 60 days later to remind yourself to check your credit report.
There are many free and paid services available, but the best one is AnnualCreditReport.com. This website provides free credit reports every 12 months from the three major credit bureaus (Equifax, Experian and Transunion) — plus, credit reports from AnnualCreditReport.com are available weekly through April 2021. And again, don’t throw away the following month’s statement, as you may still owe back interest even though you paid the balance off before you closed the card.
Step 8: Destroy the old card
Once you’ve closed your credit card, destroy the old credit card using a household shredder or stop by your local bank branch and ask that they put it into their shredder bin. You can also use scissors to cut up the card into small pieces and throw those in the trash.
For people with metal credit cards, call your bank and ask them to mail you a return envelope. They have special processes to destroy metal credit cards that have been closed.
While the credit card should no longer be active once you close it, it’s better to be safe than sorry by taking the extra step to destroy the card.
Alternatives to closing your credit card
Keeping your overall credit limit high and your on-time payment history active are positives for your credit score. Before closing your credit card, consider the following alternatives that may allow you to continue receiving benefits and earning rewards:
- Ask the card issuer for a retention bonus. If you’ve been a good customer, an issuer may offer a retention bonus to keep your account open. Retention bonuses differ based on the bank, the specific credit card you have and your personal profile. Retention bonuses range from waiving the annual fee to extra points or a bonus based on your spending.
- Request a product change. Many credit cards come in variations with and without an annual fee. For example, Delta offers several credit cards, including one without an annual fee. If your concern is the annual fee and the issuer won’t waive it, but you want to continue earning rewards, switching to the no-fee version makes sense.
- Keep the card active and set up autopay. You could bill a recurring charge like a streaming service to your card, for example, and set up autopay with your card issuer to take care of the bill. That way, you can put the card in a drawer and forget about it, all the while keeping the payment activity current and positive on your credit reports.
If you do decide to close your credit card, you’ll typically be able to apply for the card again at a later date, but there may be restrictions when doing so. For example, American Express has a once-in-a-lifetime rule governing welcome offers, meaning you can’t earn a card’s welcome offer if you’ve ever earned a welcome offer for that same card before. In a similar vein, Chase has its unwritten 5/24 rule — meaning if you’ve been approved for five or more personal credit cards from any issuer within the past 24 months, you’ll be denied when applying for a new Chase card.
While it’s typically better to keep older credit cards open if it doesn’t cost you to do so, there are cases where closing the credit card is preferable. By following these steps, you can ensure you don’t hurt your credit score or end up owing money unexpectedly on the account.