How to cancel a credit card

As useful as credit cards are, they can also be a source of stress. Whether you’re struggling with credit card debt or late payments, or you just have an old card that you no longer use, the idea of ​​canceling your credit card can bring you a sense of relief.

However, before you pick up scissors, know that properly canceling a credit card involves more than just cutting it in two. You need to follow certain steps to close your credit card account in a way that will cause the least amount of damage to your credit history.

Here’s everything you need to know to successfully cancel a credit card.

Credit card cancellation steps

There are several steps you need to take to ensure that your credit card account is indeed closed, that you don’t miss out on any rewards you’ve earned, and that you’ve paid off the card in full. Follow these steps to get it right:

Pay off balance

Pay off your credit card in full, or if you can find a balance transfer card with better terms, transfer your balance. You cannot completely close the card until the balance has been paid.

If you do not want your card to incur additional charges until the balance has been paid, you can contact the issuer and ask them to freeze your card until you have paid the balance and closed it.

If you normally hold a balance, you will need to pay the full balance of the statement two months in a row to erase it and prevent further interest accruing.

Use remaining rewards

In the case of bonus cards, you will probably lose some of your accumulated rewards when you close the card. But with planning, you can minimize losses. Check the rewards balance and redemption options on the issuer’s website. If you can’t apply them to travel or merchandise, you can use your accumulated miles or points as a credit statement.

Cashback credit cards tend to have the easiest repayment options. However, many require the reward to reach a certain threshold – usually $20 or $25 – before you can redeem it for statement credit.

Several cashback programs award accumulated cash only once a year on a predetermined schedule. Knowing the redemption rules will allow you to plan how to cash out your hard-earned rewards before you cancel your card.

Update your payment method for recurring payments

If you use a credit card to make recurring payments (like Netflix subscriptions or mobile phone bills), it’s best to update all those payments with a different credit card or payment method before canceling the card. This way you won’t accidentally miss a single payment.

Call your bank

Be sure to call your bank before canceling to make sure your credit card balance is zero – don’t assume it’s paid off because you paid the full amount of your last bill. Interest may have continued to accrue between the time the issuer sent the invoice and the time you made the payment, and this “residual” amount is called residual interest.

As soon as you are sure that the balance is zero, inform the issuer that you are canceling the card. While some credit card companies allow you to cancel your subscription without even speaking to a representative, others may require a phone call.

If you meet resistance, stand firm. You have the right to close the account. Let the representative know that you want them to indicate that the account is being closed at your request.

Ask for the name and address where you can write your card cancellation notice and write it down along with the details of the call, including the date, time, and identification of the representative you spoke to.

Request to close a card account

For additional insurance (in case a customer service representative makes a mistake), write a short cancellation letter to the card issuer and request written confirmation of account closure.

The letter must include your name, address, phone number and account number, as well as details of your previous phone call. Also, indicate that you want your credit report to show that the account has been “closed at the request of the consumer.”

Please include with your letter the check number (or a copy of a canceled check or other proof of payment) you used to pay the account balance.

Make a copy of the letter for yourself. Send the letter by certified mail or with acknowledgment of receipt so that you can prove that the issuer received your letter.

Check your credit report to confirm the cancellation

Now it’s time to sit still. Cancellation of the card may take a month or more. After this time, take a look at a copy of your credit report to make sure the account is marked as “closed”.

You can get a free copy of your credit report once a year from each of the top three credit bureaus (Equifax, Experian and TransUnion) at AnnualCreditReport.com. If the account appears to be open, repeat the process: call customer service to report the error, send a registered letter (including a copy of the original letter asking you to close the account), and then check your credit report again. .

If that doesn’t help, you can file a dispute through one of the three credit reference agencies (they must notify the others). And if that doesn’t work, you can file a dispute with the Consumer Financial Protection Bureau.

Recycle your card

After documenting the cancellation process and verifying that your credit report reflects a closed account, you can finally cancel your credit card. There are several ways to destroy your plastic or metal card, but you need to choose a disposal method that makes your information completely inaccessible to identity thieves.

If you choose to bring scissors, make sure you cut out every bit of information, including your card number, CVV, expiration date, and signature.

While it may be worth temporarily postponing closing a credit card if you are in the market for a new loan or mortgage, credit card cancellation should not be a major concern for consumers with good credit history as the impact on their credit scores is likely to be minimal and temporary.

Does closing a credit card affect your credit?

Before closing any credit card account, you need to consider the possible impact on your credit score. Just because you cancel a credit card doesn’t mean its billing information immediately appears on your credit report.

In the case of open accounts, positive credit data may remain on the credit report indefinitely. Closed accounts with zero balances and no negative information associated with them usually remain in the credit history for 10 years from the date of the announcement of the closure.

Most of the bad scores on your credit report have a shorter expiration date. Under the Fair Credit Reporting Act, negative data, such as late payments and foreclosures, must be removed from a credit report after seven years.

In addition, potential lenders consider the amount of credit still used after the card and its associated credit limit are cancelled. This is because credit bureaus and lenders are interested in your balance-to-limit ratio, also known as your credit utilization ratio, which compares the amount of credit you currently use to the amount of total credit available to you.

Depending on your total available credit, closing a credit card account with a high credit limit can hurt your credit score, especially if you have large balances on other cards or loans. To make sure that closing one card does not affect your account, pay off the balances on all your other cards. If you have a zero balance, your credit utilization ratio is zero, so losing your balance will not affect it.

When does it make sense to close a credit card?

The first question to ask yourself before canceling a card is, “Do you really need to cancel it? Or would it be better to just remove it and not use it? Having an available line of credit on your card with no balance always helps your credit score, and this can come in handy in an emergency or if conditions improve in the future.

However, there are two situations where closing a credit card is required:

You can’t control your spending and must resist the temptation

If you’re struggling with spending – especially impulse spending – you may find that having a credit card allows you to make more purchases than you can afford. If you can’t pay off your balance monthly, you’ll end up in high-interest debt. Using a debit card may be better for those who enjoy the convenience of a credit card but who are struggling to stay on budget.

You pay an annual fee for a card you don’t use

Some credit cards come with an annual fee. This fee is worth paying if you use the card enough to earn a lot of rewards and if you take full advantage of it. However, if you have an annual credit card and you no longer use it, it makes sense to cancel it.

bottom line

Closing an account properly takes a little time, patience and organization. When you go through the credit card cancellation process, make sure you keep detailed records of who you talked to, what they said, and when. That way, if something goes wrong, you’ll have all the facts at your fingertips.