How To Cancel a Credit Card: The Safe Way
There are plenty of reasons to cancel a credit card. However, you should understand what canceling will do to your credit score, because canceling can have a negative impact.
Canceling requires more than just cutting up the card and throwing it out to keep your score intact. The good news is you can minimize the damage or, in some cases, avoid it entirely if you decide to cancel. Here’s how you can make that decision and how to cancel a credit card without damaging your credit score.
Reasons To Cancel a Credit Card
Any number of circumstances might warrant canceling a credit card. For example:
- Your credit card rewards aren’t worth the annual fee.
- You’re carrying a balance on a card with a high-interest rate.
- You have more credit cards than you need.
- You’re ready to trade up from a store card to a bank card or from a bare-bones bank card to a rewards card.
- You find it difficult to resist overspending with a credit card.
While these are all legitimate reasons for canceling a credit card, it doesn’t mean canceling is the best move. An online credit score simulator can help you determine what effect specific actions, including canceling a credit card, might have on your score. In addition to helping you decide whether canceling is worth a lower score, a simulator can show ways to offset the impact, such as by opening another card, increasing a credit line or paying down a balance.
When deciding if you should cancel, it can also help if you understand how a credit card impacts individual parts of your credit score and not just your overall score. If you cancel, you don’t want to be surprised by a significant credit score drop.
How Canceling a Credit Card Impacts Your Credit Score
Five areas make up your FICO credit score. Each area accounts for a set percentage of your overall score. Canceling a credit card could harm the following three areas.
Your credit utilization rate is the difference between the amount of credit you’re using and the total available amount. It makes up 30% of your overall credit score, so a change in credit utilization can significantly impact your overall score.
The lower your credit utilization percentage, the better. If you cancel a credit card, it decreases your overall available credit. Lower overall available credit means you are now using a greater percentage of your credit, and your credit utilization score could drop.
Your credit mix represents how well you simultaneously handle different types of debt. The more variety in debt you carry, the better your credit mix. Canceling your only credit card will lessen the variety. Credit mix only makes up 10% of your overall credit score, which is not a significant percentage. But it could be enough to lower your score if other factors are also negatively affected by the closing of a card.
Your credit history makes up 15% of your overall credit score. It includes the age of each of your credit accounts and the average age of all your accounts combined. The longer you have a card, the more significant a part it plays in your credit history, and the bigger its impact on your score if it is closed.
The two pieces of your credit score that typically won’t be affected by a canceled card are your payment history and new credit. But consider the other three areas carefully. Depending on how long you’ve had the card and the card’s credit limit, you could take a hit on all three categories by canceling one card.
Guidelines for Determining Which Credit Cards To Cancel or Keep
If you’ve applied for too much credit and it is getting you into debt trouble, it makes sense to close some of your accounts. However, you should be strategic about which cards you cancel, so you can avoid hurting your credit score:
- Don’t cancel your oldest card. Since 15% of your credit score is based on the length of your credit history, canceling your oldest card will reduce the average age of your history. And when the card eventually drops off your credit report, it’ll make your credit history appear shorter than it is and potentially damage your overall score.
- Don’t cancel cards with the largest credit limits. Remember that your credit utilization rate is 30% of your credit score. Cards with larger limits help you keep a low credit utilization rate. If, for example, you have $10,000 worth of credit across your credit lines and have total balances of $2,500, your utilization rate is 25%. Cancel a card with a $5,000 limit and your utilization rate jumps to 50%.
- Don’t cancel your only bank credit card unless you have other types of credit. A bank card can help your score’s credit mix if it is your only bank-issued card. Only consider canceling a bank card if you have a sufficient mix of account types — such as an auto loan, a mortgage loan and a store account.
- Don’t cancel a card simply because you haven’t used it. Unless having it causes a negative consequence, you’re better off keeping the card to maintain a favorable credit utilization rate. Even better, use it for a small purchase now and then and pay off the balance the right way — unless you’re carrying a lot of debt.
- Don’t close bank cards before retail cards. Major bank cards often have better rates, lower fees and higher credit limits than retail cards. Plus, retail cards that aren’t co-branded can only be used at a specific retail store.
- Don’t cancel cards that are valuable to your lifestyle or your finances. For example, a card with a higher annual fee might be worth keeping if it provides you with valuable rewards. If you’re in the habit of carrying a balance, a card that features a low-interest rate might be worth keeping open.
Alternatives to Canceling a Credit Card
Unless keeping a credit card open is damaging your credit score far more than closing it would, you may want to choose an alternative to closing a card. There are a few things to consider before closing credit card accounts that could help your credit score.
Upgrade or Downgrade
Sometimes you might want to keep a credit card account open if you can tweak the terms or fees a bit. Ask for an incentive to keep your account open, or downgrade to another card.
You can call the credit card issuer and say you’re considering closing the account due to the APR or high annual fee. Many credit card companies offer a bonus offer or other incentive to get their best customers to keep their accounts open, and you might find the offer compelling enough to change your mind.
Transfer the Balance
Transferring a balance on a high-interest card to a lower-interest card makes sense. But you don’t necessarily have to close the card with the higher APR. It could ding your credit if you then close the account.
Consider transferring the balance to a card you already have and keep both accounts open. Or transfer the balance to a new card, but quickly pay down the debt. This could actually boost your score by reducing your credit utilization rate.
How To Cancel a Credit Card
If you have decided to cancel a credit card, simply paying off the card does not cancel it or the account. There are certain steps to effectively canceling a credit card.
- Redeem any outstanding rewards before canceling your card. Otherwise, you may forfeit them.
- Stop any automatic payments that use the card. Set up a different card or your bank account as the new payment method so you don’t risk late fees for non-payment of any bills.
- Contact the credit card company to find out your payoff amount. Although your statement shows your balance as of the date the statement was prepared, additional interest or fees may have since accrued.
- Pay off your card if possible. It’s usually possible to close an account when you have a balance, but don’t forget to continue making the credit card payments.
- Call the credit card company or go online. Some credit card issuers allow cardholders to cancel their credit card online or through the card issuer’s mobile app. Or you can call your card issuer. If you call, ask the credit card company to report to the credit bureaus that the account was closed at the customer’s request.
- Follow with a written letter sent via certified mail. In the letter, state that you want to close the account. Also, request that the creditor reply with written confirmation that the account was closed at your request with a $0 balance.
- Check your credit report to confirm the account has been reported as closed. Do this approximately 60 days after you cancel your credit card. Verify that the report indicates that the account was closed at the consumer’s request. Accounts noted as closed by a creditor can negatively impact your credit.
- Destroy your card. You should do this once you’ve verified that it has been canceled.
You should get your credit report from all three of the major credit bureaus to ensure your closed account was properly reported. You can request a free credit report from the credit bureaus — Equifax, Experian and TransUnion — once a year through AnnualCreditReport.com. Open a dispute with each of the credit bureaus if the closing was misreported.
Unless a credit card plays an insignificant role in your overall credit history, credit mix and credit utilization, it might make better sense to leave it open. Just because you have a credit card does not mean you have to use it regularly. But if the number of credit cards you have contributes to a debt problem, canceling cards to protect your finances might be more critical than keeping cards to protect your credit score.
FAQHere are answers to commonly asked questions about canceling a credit card.
- How do I permanently cancel my credit card?
- Most credit cards can permanently be canceled by calling the card issuer or closing the account online. You can also mail a certified letter. If the credit card has a remaining balance, the cardholder is still responsible for payment even after closing the account. Be sure to use any outstanding rewards and stop any automatic payments for which the card is used before you cancel.
- Is it better to cancel unused credit cards or keep them?
- If an unused credit card has a high credit limit or a long-established credit history, closing it could negatively impact a cardholder's credit score. It is usually better to leave these cards open. Cards with a low credit limit or that have not been opened long can typically be canceled without a significant credit score impact.
- Can I cancel my credit card online?
- Some credit card issuers allow cardholders to cancel their credit card online or through the card issuer's mobile app. The account should show as closed on a credit report 30 to 45 days after cancellation. Make sure the credit report indicates the account was closed at the customer's request and not the creditor's. Open a dispute with the credit bureaus if the closing was misreported.
- Is it harmful to cancel a credit card?
- Canceling a credit card can be harmful to your credit score. How much depends on how long the account was open, the credit line amount and how many other types of credit the cardholder carries. New cards with lower credit limits will not have as significant an impact as older cards with higher credit limits.
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