How to Cancel a Credit Card Without Hurting Your Credit Score

How to Cancel a Credit Card Without Hurting Your Credit Score, August 2021

You want to cancel your credit card for one reason or the other. You are about to call your card issuer and have them cancel your credit card. Well, it does sound very simple, doesn’t it? But then, did you know that you can severely hurt your credit score when you cancel a credit card?

That’s right.

Credit card cancellation can have a negative effect on your credit score. Experts always advise not to cancel a credit card, even if you’re not using it.

But then again, certain circumstances may force you to close your credit card indefinitely.

For example, if you’re having a hard time controlling your spending, it would be wise to close your card, even if you’re not currently using it. Similarly, canceling a credit card would be a wise decision if its value has diminished and you’ve stopped using the card.

The good news is that you can still cancel your credit card without causing much damage to your credit score. To avoid hurting your credit score, there are specific steps you’ll need to follow.

In this article, we are going to explain how to cancel a credit card without hurting your credit score.

How Does Cancelling A Credit Card Hurt Your Credit Score?

Canceling a credit card will most likely affect your credit score. However, the extent to which your credit score will be affected will depend on various factors like;

  • The length of your credit history.
  • Your current credit limit.
  • The available credit on your card.
  • How much you charge the card.
  • For how long you’ve had the credit card.

What happens when you cancel your credit card is that your credit utilization ratio is raised. At the same time, closing your credit card generally lowers the average age of your account.

The credit utilization ratio is typically the ratio between the total amount of credit in use and the total amount available. For instance, if you have a credit limit of $2000 and carry a $500 balance for about a month, then the credit utilization ratio on the card is 25 percent ($500/$2000 by 100%).

You should also know that your credit utilization ratio also matters if you have multiple credit cards. For example, say you have a total of two credit cards with different limits- the first card has a $3000 limit and the second one has a $1000 limit.

If you close the credit card with a $3000 limit, you will bring down your total credit limit, which will ultimately have a huge negative impact on your credit score.

Usually, credit card companies prefer a credit utilization ratio of at least 30% and below. This simply means that the lower the credit utilization ratio you have, the better. On the other hand, when you have a higher credit utilization ratio, your creditors will automatically assume that you’ll need a high amount of credit to sustain your expenditures and that you might end up defaulting.

So when you close your credit card, you’re automatically reducing your available credit. This will, of course, increase your credit utilization ratio.

Hopefully, by now you understand how canceling your credit card can affect your credit score. Of course, the factors determining how closing your credit card will affect your score varies from individual to individual.

That said, follow the below steps to cancel your credit card the right way without hurting your credit score.

Steps To Cancelling A Credit Card Without Hurting Your Credit Score

By now, you understand the major advantages and disadvantages of credit card cancellation. If you still want to cancel your card but are not sure how to go about it, don’t worry. We are here to help. Here is how to close your credit card and not hurt your credit score;

1. Payoff Any Remaining Debt

You cannot completely cancel your credit card until the balance is fully paid.

You need to understand that interest and fees will continue to accrue as long as the balance remains unpaid.

The only solution is paying off your balance in full.

Get in touch with your credit card issuer about your payoff amount. Your card balance isn’t the only money you owe.

The payoff amount will also include any interest and fees that have been accrued the entire period you’ve used your credit card.

If you’re not able to pay the balance in full immediately, you can find yourself a balance transfer card and transfer the existing balance on your card there.

2. Redeem Any Awards On The Credit Card

If you’ve garnered any rewards, points, or cash back, be sure to use them up before closing your card. Otherwise, you might end up losing them.

There is an exception with co-branded travel cards though.

With these cards, the rewards are usually transferred from the credit card to their loyalty program every single month. 

This means you won’t lose them even if you decide to close your card.

But just to be sure, get in touch with your card issuer for more details about redeeming rewards and about the loyalty program.

3. Update Any Automatic Payments

If you had previously used the credit card to set up automatic payments, you should either cancel the payments on that card and use another credit card or link them up to your checking account before closing the card.

4. Notify Any Authorized Users About The Card Cancellation

In case you have authorized any users on your credit card, be sure to notify them beforehand that you’re canceling the account. This will prevent them from using the card right after you’ve paid off the balance and are about to have it closed.

5. Confirm That You Have No Balance On The Credit Card

You might automatically assume that your card has no balance since you’ve just made the final payment. You might end up being surprised. Make sure you contact your card issuer to ensure that your credit card has a zero balance.

6. Get In Touch With Your Card Issuer For Card Closure

After you’ve confirmed that the remaining balance on your card is zero, you can then request your card issuer to close the card. They will confirm the closure of your card.

7. Check Your Credit Report To Confirm The Cancellation

In some cases, a credit card cancellation process can take time- sometimes a month or more. It depends on the card issuer.

Right after the card has been canceled, check your credit report to confirm whether the cancellation has taken place. You can always get this report either from one of the top three credit bureaus namely TransUnion, Equifax, and Experian.

8. Dispose Of The Credit Card

After confirming that the card has been closed, now you can dispose of it. Don’t just throw it away- cut it up with a pair of scissors or place it in the shredder.

Bottom Line

Canceling your credit card may seem appealing. However, realizing how this act could impact your credit score is crucial. The good news is that you can still close a credit card without damaging your credit score. Follow the above process and you’ll just be fine.

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