Ditching Your Plastic Pal: The Safe Way to Cancel a Credit Card

Yo, credit card warriors! We all know the struggle: juggling multiple cards, battling annual fees, and trying to resist the siren song of impulse purchases. Sometimes, the best move is to say “adios” to a card that’s no longer serving you. But before you go snipping that plastic, let’s talk strategy. Canceling a credit card the wrong way can leave your credit score bruised and battered. So, buckle up, my friends, and let’s dive into the safe way to cancel a credit card without sacrificing your financial well-being.

The Impact of Closing a Card: A Delicate Dance

Before we dive into the nitty-gritty, let’s understand the potential consequences of canceling a card. It’s not always a bad thing, but it’s important to be aware of the impact it can have on your credit score.

Credit Utilization Ratio: This fancy term refers to the percentage of your available credit that you’re actually using. Closing a card can increase this ratio, which can ding your score For example, if you have two cards with a combined limit of $2,000 and you’re using $1,000, your utilization ratio is 50% If you close one card, your utilization jumps to 100%, which isn’t ideal.

Credit History Length: The longer your credit history, the better. Closing a card removes its history from your credit report, potentially shortening your overall credit history.

Number of Accounts: Having a mix of credit accounts (installment loans, credit cards, etc.) is good for your credit score. Closing a card reduces the number of accounts you have open, which can also impact your score.

When Canceling Makes Sense: A Few Exceptions to the Rule

Okay, so canceling a card isn’t always the best idea. But there are a few situations where it might be the right move:

High Annual Fees: If you’re paying a hefty annual fee for a card you rarely use, it might be worth canceling it. Just make sure the benefits you’re losing (rewards, travel perks, etc.) don’t outweigh the cost savings

Temptation Trap: Some folks find it hard to resist the allure of plastic. Canceling a credit card that is causing you to overspend could be the most effective way to end the cycle.

Joint Accounts: If you’re going through a separation or divorce, it’s wise to close any joint credit card accounts. This can protect you from being liable for your ex’s future charges.

The Safe Way to Cancel: A Step-by-Step Guide

So, you’ve decided to part ways with a card. Here’s how to do it the right way:

Step 1: Redeem Rewards: Make sure to use any unused miles or points from your rewards program before you quit. Don’t leave free stuff on the table!.

Step 2: Pay Down Balances: Ideally, you should pay off all your balances on the card you’re canceling (and any other cards you have) before you close it. This will minimize the impact on your credit utilization ratio.

Step 3: Make the Call: Tell your credit card issuer that you’ve decided to cancel by calling them. Confirm that your balance is indeed $0.

Step 4: Double-Check in Writing: Send a certified letter to your card issuer requesting confirmation of your $0 balance and closed account status. Keep a copy for your records.

Step 5: Keep an Eye on Your Credit Reports: Following 30 to 45 days, review your credit reports from TransUnion, Equifax, and Experian to make sure the account is correctly closed and has a $0 balance.

Step 6: Dispute Errors: Get in touch with the credit bureaus and raise any inconsistencies you discover.

Myth Busting: Your Credit History Isn’t Doomed

You might have heard that closing a card means losing the “age” of that account on your credit report. But here’s the good news: as long as the account remains on your report (even if it’s closed), it will still contribute to your average credit history length. It only disappears after seven years (for negative accounts) or around 10 years (for positive accounts).

The Bottom Line: Weigh Your Options Carefully

Don’t rush into canceling a credit card without considering the potential consequences. If you can manage your credit responsibly, having multiple cards can actually help your score. But if a particular card is causing more harm than good, following these steps will help you cancel it safely and minimize the impact on your credit score. Remember, knowledge is power, and with the right approach, you can navigate the world of credit cards like a pro.

How Does Closing a Credit Card Affect Your Credit Score?

Your credit score might be hurt if closing the card changes your credit utilization ratio. Credit utilization measures how much of your total available credit is being used, based on your credit reports. The more available credit you use, the worse the impact will be on your score. Aim for a ratio of around 30%.

High Annual Fees

It may be appropriate to cancel your card if your issuer is charging you a hefty annual fee for an account that you don’t use. Nevertheless, it might be worthwhile to pay the annual fee if the account offers advantages like travel credits and perks that exceed it.

An annual fee on a credit card that you don’t use or benefit from is another story.

Before you cancel the account, call your card issuer to ask for the annual fee to be waived. Be sure to mention that you’re considering closing your account. It doesn’t hurt to ask, and you might be pleasantly surprised.

Should I Close a Paid Credit Card Or Leave It Open?

FAQ

Is it good to close a credit card and open a new one?

Credit experts advise against closing credit cards, even when you’re not using them, for good reason. “Canceling a credit card has the potential to reduce your score, not increase it,” says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report.

Is it better to cancel unused credit cards or keep them?

Canceling a credit card will cause a direct hit to your credit score, so more often than not, you’ll want to keep the account open. Correctly managing an open, rarely-used account may require some extra attention, but the added effort will help your credit in the long run.

How bad does closing a credit card hurt?

Key takeaways: Closing a credit card can hurt your scores because it lowers your available credit and can lead to a higher credit utilization, meaning the gap between your spending and the amount of credit you can borrow narrows. Canceling a card can also decrease the average age of your accounts.

Can you open a new credit card after closing one?

Technically, you could close a card and apply for another one immediately after. However, it’s best to wait at least 90 days between credit card applications, especially if you closed a card and are applying for a card with the same issuer.

Should you close a credit card?

If you are considering closing a credit card, this gives you an opportunity to close the credit card account with a highest interest rate. In the long run, maintaining financial health could be much better for your credit score than the benefits of keeping the card account open.

Will closing a credit card affect my new credit?

When you apply for a new credit card, you might notice a hard inquiry on your credit reports. This shows that the lender checked your credit before deciding whether to approve your account. Closing your credit card won’t affect your new credit unless you’re closing it to open a new card.

How does closing a credit card affect my score?

Closing will have opposite effect on your score. (Decreasing your overall limit and increasing your utilization.) Unless you are paying an annual fee, I wouldn’t bother actually closing the old account, just stop using it and shred the cards.

Does keeping a credit card account open affect your credit score?

In the long run, maintaining financial health could be much better for your credit score than the benefits of keeping the card account open. If you feel that keeping the account open could send you back into a stressful debt situation, then chop it up and close it down. 2. It may not affect your credit score: