How to cancel a credit card
With care, you can close an account without hurting your credit score
By Jeremy M. Simon
You want to cancel your credit card. But before you pick up your scissors, know this: Canceling a credit card the right way involves more than simply snipping it in two. It requires you to follow specific steps to close the credit card account for good with the least damage to your wallet and your credit.
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Card cancellation tips from
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Reasons to cancel a credit card
The decision to cancel a credit card may be based on the desire to avoid excessive spending encouraged by too much plastic or to protect yourself, since closing an account can prevent its use by both identity thieves and authorized users (think exes) who you would prefer no longer have access to the card.
It also makes sense to cancel cards that are unnecessarily costing you money. While you should initially seek some interest rate relief by contacting the card issuer, "you want to close accounts that have very high interest rates attached to them," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. Credit cards that charge annual fees are another good target for cancellation, if the bank proves unwilling to waive that fee.
Separately, the opening of a new credit card account can be a good time to close another: After taking advantage of deals offered by balance transfer credit cards, consider canceling the old card, Jones says. Before opening that new account, be sure to read the fine print on balance transfer credit card offer.
Before you cancel a credit card
Prior to closing the account, consider the possible effect on your credit. Even after a credit card gets canceled, the account information doesn't necessarily come off your credit history.
In the case of open accounts, "Positive credit data can stay on the credit report indefinitely," says Craig Watts, public affairs manager for FICO, the company that created the most widely used credit score, the FICO score. Closed accounts with zero balances and no associated negative information typically remain on a credit history for 10 years from the date they are reported closed. "This allows the positive information to remain longer than most negative information," says Rod Griffin, director of public education with credit bureau Experian.
That's because the bad marks on your credit report also have an expiration date. "Negative data such as late payments and foreclosures need to come off the credit report after seven years, by federal law," Watts says.
Adds Griffin, "If the account is never again positive, is charged off and sent to collections, the original account and any subsequent collection account will be deleted at that time."
Experian provides an online list of how it deletes information. Griffin summarizes: "Chapter 13 bankruptcy is deleted seven years from the filing date because requires at least partial debt repayment. Chapter 7 bankruptcy remains 10 years from the filing date. Unpaid tax liens remain 15 years."
Lenders -- wary of taking on too much risk in a difficult economy -- have become increasingly focused on the amount of credit still in use once card gets canceled. That's because credit bureaus and lenders are interested in what is known as a balance-to-limit ratio, also known as a utilization ratio, which compares the amount of credit being used to the amount of total credit available to the borrower.
"The ratio is more important today than how much available credit you have," Griffin says. From the lender's standpoint, "a low balance-to-limit ratio is a strong indicator of good credit risk," he says. To compensate for the closure of one account, you can request a higher credit limit on another in order to maintain the ratio.
Depending on your total available credit, closing that account could hurt your credit score. "To close card accounts without impacting one's credit score, you need only have zero balances on your credit report for all of your active credit cards. That's because if you have zero balances your credit utilization rate is therefore zero, and you can't raise it -- and potentially hurt your score -- by closing one or more of the active card accounts," Watts says.
If there is a risk that you might overspend, they'll take that into consideration.
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-- David Jones
president, AICCCA |
Having excessive access to credit could also spell trouble. "You don't want to have more credit available to you compared to the amount of income that you have," Jones says. That could make lenders hesitant. "If there is a risk you might overspend, they'll take that into consideration," Jones says.
Old credit is the best credit
The age of a credit card account is also worth considering. "The time an account has been open is a factor in credit scores," Griffin says. "A longer positive history is beneficial to credit scores. So, closing an older account in theory could have a more negative impact."
How negative? There's no single answer, Griffin says. "Credit scores weigh everything in a person's credit history in relation to each other. So, for one person, closing an older account can represent higher risk than it does for another person solely because of the unique nature of their overall credit histories."
Credit card cancellation, step by step
Provided you have considered these issues and have another credit card you can make charges on, you are ready to cancel your credit card. Closing an account the right way takes time, patience and organization. But it's important to be thorough in order to cancel your credit card correctly. Use the following steps (and this would be a good time to print out the CreditCards.com "Cancel a credit card worksheet").
1. Know who to contact.
To begin the process of closing the account, gather and write down the customer service number and the mailing address you'll need. The 800 number is on your credit card, monthly statement and the issuer's website; the mailing address is also on the website and the monthly statement.
2. Pay down your balance in full.
"Closing a credit card that has a balance may not be the smartest thing to do," says AICCCA president Jones. If you inform the card issuer that you are thinking about leaving, the lender could raise interest rates on the outstanding balance. So pay off your credit card in full before you let the card issuer know you're jilting it. Or, if you have been stung by a rate increase and you can find a balance transfer credit card with a better deal, transfer the balance. When it comes to credit card issuers, "it's probably not wise to tell them you're going to close an account before you do," Jones says. "It doesn't take very much, especially with universal default clauses." Additionally, since there is really no benefit to telling the bank you plan to close the account, "Why should a consumer do something when there is no real advantage to them?" Jones asks.
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Hit with a interest rate hike?
Here's a step-by-step guide |
| These CreditCards.com articles about what to do if your credit card APR is going upwill help you take the proper steps to take to protect yourself and your credit.
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3. Deliver the news. Once you reach the bank's customer service representative, start by confirming that the balance on your credit card is zero. Do not assume that the balance is zero because you paid the total amount on your credit card bill. Interest continues to accumulate between the time the issuer sent the bill and when they got your check (that "leftover" amount is called residual interest).
Once you're certain the balance is zero, inform them that you are canceling the card. While some credit card companies will allow you to cancel without even speaking to a representative, other may be less obliging. "Be prepared to have the customer service rep try and talk you out of closing your account. They will be very convincing, so if this is what you decided, then tell them politely again by letting them know you want the account closed immediately," says Lou Rodriguez, founder of the National Association of Credit Responsibility and Accuracy, a consumer advocacy group. The reason for this hard-sell approach is simple: It costs banks more to find new customers than to retain existing cardholders. If you are convinced you want to cancel, remain firm. Tell the rep you want it noted that the account is being closed at your request. Ask for a name and address you can write to with a notice of your card cancellation and note this along with the call details, including date, time and a way to identify the representative you spoke to.
4. Send a letter. For added assurance (in case the customer service rep makes a mistake), write a short cancellation letter to the card issuer, directed to the name provided. Request written confirmation of the account's closure. "This is a must and is to be done in conjunction with the phone call," says Rodriguez. The letter should include your name, address, phone number and account number, and details from your earlier phone call. Also, state that you want your credit report to reflect that the account was "closed at the consumer's request." Now that credit cards get opened and closed so often, credit scores don't penalize consumers as much for closing accounts. Still, it's still a good idea to help ensure that no one thinks the card issuer closed the account, Jones says.
Being extra cautious isn't a bad thing. Enclosed with the letter, include the check number (or a copy of the canceled check or other payment verification) that you used to pay off your account balance, as well as the date the check cleared with your bank. Make a copy of the letter for your records. Additionally, you can place your destroyed credit card in the envelope with the letter. Send the letter via certified mail or return receipt requested so you can prove the company received your letter.
5. Be patient. Then you sit tight. Getting the card canceled may take a month or more, since a credit card issuer is a "huge bureaucracy," Jones says. After that time, take a look at a copy of your credit report to make sure the account is marked as "closed" on your credit report. If the account appears open, repeat the process: Call the customer service number to report the mistake, follow up with a letter by certified mail (including a copy of your original letter requesting that the account be closed) and then check your credit report again. Be sure to keep at it. It is not the credit bureau's responsibility to make sure your credit report is correct, so you need to check that what the creditors have told the credit bureau is accurate.
6. Take notes. As you go through the process of canceling your credit card, you may want to keep thorough notes on who you spoke to, what they said and when. That way, if anything goes wrong, you will have all the facts recorded. When you get a return receipt from your certified mail, keep it with the log you are keeping and note the date the receipt comes in.
Although it may be worth temporarily holding off on closing a credit card while in the market for a loan or mortgage, canceling a credit card shouldn't be a source of major concern for consumers with good credit, since the resulting impacts on their credit scores are likely to be minimal and temporary. "Usually it's not a lasting impact," says Griffin. If your score is very good, closing an account shouldn't have an impact on your ability to get loans at fair interest rates. Once it becomes clear that you simply closed a credit card account, your credit score will come back up, Griffin says.
See related: Credit card video: Cutting up a credit card the right way, How to safely, securely destroy a credit card: 6 tips, Cancel a credit card worksheet, The true cost of canceling a credit card, Canceling a credit card and your credit score, Consumers gain right to opt out of credit card rate increases
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