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How to Close a Credit Card

How to Close a Credit Card

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This article was last updated Jun 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 comes a time to say goodbye. It may no longer be worth the annual fee. The benefits or earnings power may have been reduced. Or it just doesn’t fit with your spending patterns.

Whatever your reasons for closing a credit card, you should follow certain processes to ensure it is done correctly. You cannot simply cut up the credit card and forget about it. That doesn’t eliminate annual fees or protect you from unexpected charges or other situations. If you don’t take the right steps, it could cost you money and hurt your credit.

Should I close my credit card?

Before we share best practices for closing a credit card, let’s discuss why people choose to close one. Some reasons include too high of an annual fee, changing benefits or the rewards program isn’t a good fit anymore.

If you are focused on eliminating your debt, closing a credit card can remove the temptation to spend again after you’ve paid off the balance. Many people in this situation switch to debit cards so they can only spend what they have available in their checking account.

Other credit cards may need to be closed because the annual fee is too high compared with the benefits. Banks change credit card benefits and annual fees regularly. Just because a credit card worked well for you in the past does not mean that it is the right card for you going forward. Every year you should review the annual fees you pay versus the benefits to decide if the perks justify the fees.

Other reasons for closing a card could be that you’re ready to graduate from a student card or secured card, or even trying to whittle down the number of open card accounts you have open to a manageable few.

Will closing a credit card hurt my credit?

When you close a credit card, it can negatively affect your credit score in many ways. That’s why it needs to be done carefully.

For example, closing the credit card will reduce your available credit, which can increase your utilization ratio and lower your credit score if you’re carrying balances on any other card. Utilization is the ratio between your balances versus credit limits. The lower it is, the higher your score.

Your credit score is made up of the following five factors, including how much each factor is weighed:

  • Amounts owed (30%)
  • Payment history (35%)
  • New credit (10%)
  • Length of credit history (15%)
  • Credit mix (10%)

Once a card is closed, future on-time payments will no longer add positive marks to your payment history. This won’t hurt you, but it will not be a benefit either.

In fact, if you don’t have any credit accounts reporting activity to the credit bureaus over a long period of time, you may find yourself without an active credit profile. That’s why it’s important to keep at least one of your oldest cards open and use it every month for a small recurring charge to keep your credit active.

Depending upon how old this credit card is and your average age of accounts, closing it could have varying degrees of impact on the length of credit history portion of your credit score.

For instance, if it’s a card you recently opened, it shouldn’t have much of an impact as it’s relatively new. By contrast, if you are closing your oldest credit card, your average account age will decrease and could reduce your credit score, especially if you don’t have additional older accounts that are being reported.

Either way, your scores should bounce back over time as positive payment history is reported with other cards.

Banks also like to see a variety of accounts on your credit report. Loans show that you can make payments on a regular basis. Credit cards and lines of credit show whether or not you can exhibit restraint and not max out your available credit. As long as you have other credit cards reporting to the credit bureaus, closing one shouldn’t affect your credit mix too much.

When not to close a credit card

The best time to close a credit card is when you’re not actively seeking a new loan as you don’t want to risk a credit score drop if you’re going to try to qualify for a new mortgage or car loan.

Some people mistakenly think that having too many credit cards will hurt their ability to qualify for, say, a mortgage, but it’s not how many cards you have, it’s how much debt you’re carrying on your cards. If you keep your balances low or paid off every month, then having numerous open card accounts won’t work against you.

Some financial experts also recommend that if you’re going to apply for a new card that’s a better fit to replace the one you want to close, it may be best to wait to close the old card until after you’ve been approved for the new card. That way, you can be assured that your credit score is in the best shape before you close a card account you don’t want anymore.

Alternatives to closing your credit card

Before closing your credit card, consider some alternatives that may allow you to preserve your credit score, continue receiving benefits and keep earning rewards on your purchases. Keeping your credit card open allows you to keep your credit limit and payment history active, which are positives to your credit score.

Contact the bank 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, which credit card you have and your personal profile. Retention bonuses range from waiving the annual fee, extra points or a bonus based on your spending.

Convert to a no-annual-fee version of the same type of card: Many credit cards come in variations with and without an annual fee. For example, American Airlines offers several credit cards, including one without an annual fee. If your concern is the annual fee and the issuer won’t waive it for you, but you still want to continue earning rewards, switching to the no-fee version makes sense.

Keep the card open and active by using it for a small charge and setting up autopay: You could set up autopay for a streaming service subscription, for example, and set up autopayments with your issuer to take care of the bill every month. 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.

How to close a credit card

If you’ve decided that closing your credit card is the right move for you, here are the steps to take to ensure you are protected. These will minimize any interest owed, preserve any benefits and rewards you’ve earned, and protect your credit score.

Step 1: Pay off or transfer your remaining account balance

Before closing your 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 oftentimes you think you’ve paid off a balance when, in fact, there are residual interest charges that may appear in the next billing statement. So continue to check your statement a month 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 and 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 offers a 60-day window in which to redeem or transfer your points to partners after closing your account.

If you have a stash of points, then either redeem them for cash back, statement credits or for 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 that 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: Call your bank

Call your bank to let them know that you’d like to cancel your credit card. They may cancel it right away or transfer you to another department. The bank may offer you incentives or review your credit card’s benefits in an attempt to keep your account open. Stay strong and reiterate your desire to close the account.

Step 6: Mail a cancellation letter

Although many customer service calls are now recorded, having a written letter confirming the conversation ensures there are no misunderstandings. In the letter, state that you are confirming your conversation about 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, in your letter.

Also, include any other pertinent information discussed during the call. You may choose to send it certified mail with a return receipt through the U.S. Postal Service to confirm that the bank received your letter.

Step 7: Check your credit report and credit card statement

The closed credit card will not reflect on your credit report immediately after closing it. 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 currently provides free credit reports each week from the three major credit bureaus – Equifax, Experian and Transunion. 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

Now that you’ve closed your credit card, there is no need to keep the credit card any longer. Destroy the old credit card using a household shredder. If you don’t have one, 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.

The bottom line

Sometimes it is better for your credit score to keep an account open by using it for a small recurring charge and setting up autopay. You never know when an emergency might happen. If you’re concerned about annual fees, ask the bank if there’s an option to convert it to a credit card with no annual fee.

Once you’ve made the decision to close a credit card, there are a few steps you should take to protect yourself. Before closing the credit card, ask the bank if you are eligible for a retention offer. If not, redeem your rewards and benefits before starting the close process.

Pay off or transfer your balance and ensure that automatic charges are switched to another credit card. Call the bank to close the account and follow up with a written letter. Check your credit report to confirm that your account has been reported as closed and then destroy the credit card.

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