At some point, you are likely to feel that it is time to part ways with a credit card. When you are ready to cancel a credit card, it’s important to do it the right way. But first, make sure you truly want to cancel your credit card.
Understand the implications of credit card cancellation
Your credit card cancellation can have an impact on your credit score. When you cancel an old credit card, you run the risk of shortening your credit history, and that can bring down your score. Additionally, you can also reduce your available credit, pushing up your credit utilization ratio and damaging your score.
Before you cancel a credit card, make sure that it makes sense in your situation, and in context of your current goals. If you think you will apply for a mortgage or a car loan in the next few months, you might want to wait to cancel your card since you don’t want a score drop just before you apply for a big loan.
Steps for canceling your credit card
If you decide that you must cancel your credit card, you want to follow the appropriate steps in order to limit the impact on your credit score. Here is how to go about it:
Make sure automatic payments are canceled: If you use your credit card to make automatic payments for bills or for other purposes, make sure that you change the account on record, or cancel the automatic billing.
Get your credit card balance down to zero: The first step is to pay down your credit card. Either pay the amount you owe off when you can, or transfer the balance to another card (hopefully one with a 0% APR). While a credit card issuer will “freeze” your card if you want to close it with a balance, this doesn’t look that great on your credit report. You are better off paying the entire amount and then canceling when your card has no balance.
Contact the credit issuer: Now that everything is squared away, you can contact the credit issuer. Call and cancel by phone, and note who you talk to. The representative might try to get you to change your mind. Unless you are offered a great deal, stick to your guns. After you finish speaking with the representative on the phone, send a cancellation letter to the creditor (keep a copy for your records) to further seal the deal.
Follow up: It can take up to a month or more for everything to be finalized. In the meantime, don’t use the card. After a month, follow up to verify that the card has been canceled. Then, check your credit report to ensure that it reflects that the account was closed at your request. You don’t want an account to be closed at the creditor’s request, since it reflects poorly on you.
With the right approach, you can cancel your credit card and still retain your good financial reputation.