close
close

How To Cancel A Credit Card Without Hurting Your Credit Score

You’re not the only one having trouble with credit card debt. Experian says that in 2021, the average balance on a credit card was $5,221. And because some credit cards have high interest rates, that balance can quickly get out of hand.

Closing a credit card can help you cut back on spending, but it can also hurt your credit score. But there are ways to cancel a credit card that won’t hurt your credit score.

To close a credit card without hurting your credit too much, look at how old it is, how much you use it, and how much it costs you.

Is it bad to cancel a credit card?

You might want to close one or more of your credit card accounts if you have too many to keep track of or a card with high fees. Some people might be smart to close a card, but there are some things to think about:

You might use more of your credit.

30%1 of your FICO credit score is based on how you use your credit. The amount of credit you use is called your credit utilization. Say, for instance, you have three credit cards:

  • Card #1 can’t go over $5,000. You have a balance of $2,000 right now.
  • Card #2 has a limit of $2,500, but you have no money on it right now.
  • Card #3 has a limit of $1,000, but you only owe $900 on it right now.

You have a total of $8,500 in credit, but you are only using $2,900 of it. To find your credit utilization, divide your current balance by the total amount of credit you can use. So, in this case, 34% of your credit is being used.

When you close a credit card, you lose the available credit and your credit utilization goes up. Say, for example, that you closed card #2. Your spending limit would go down by $2,500, so the new amount of credit you could use is $6,000. If you divide your current balance by the amount of credit you have available, which is $2,900 by $6,000, you get 48%. When you use so much of your credit, your credit score can go down.

It changes how long your credit history goes back.

Lenders want to see that you have been responsible with your debt in the past when they look at your credit. Your credit history is so important that it accounts for 15%1 of your FICO credit score.

When figuring out your score, FICO looks at how old your oldest accounts are, how old your newest accounts are, and how old all of your accounts are as a whole.

Think about how long the account has been open before you close it. If the card you want to cancel is the oldest one you have, closing it could make your credit history much shorter and lower your credit score.

You could change your mix of credit.

Creditors look for people who can handle more than one type of debt, like credit cards and installment loans. Because of this, your credit mix, which is how many different kinds of credit you have, makes up 10%1 of your credit score.

If you only have one or two credit cards and close one, you won’t have as many different kinds of credit, which could hurt your credit score.

Why you should get rid of your credit card

Even though there are downsides to closing a credit card, there are times when it makes sense:

The fees for your card are very high. Some credit cards can be expensive, especially those that are marketed to people with less-than-perfect credit. Some cards, for example, charge a fee to set up the card and a fee every month. If your card has a lot of fees, it might be best to get rid of it.

You don’t use it enough to make the annual fee worth it. Even if you have good credit, you might have a card with a high annual fee, like a rewards card. Even if you get enough rewards, you might not use the card enough to make the fee worth it. In this case, it will save you money to close it.

You have trouble keeping track of your money. Credit cards are useful, but they make it easy to spend more than you have. If you have a lot of credit card debt from shopping sprees or purchases you didn’t need, canceling your card will help you spend less.

Your APR is getting higher. If you have a balance on one of your cards, the APR will have a big effect on how much interest you will pay. Your creditor could let you know that your APR is going up. If you can move your balance to a card with a lower APR and then cancel the other card, you will pay less in interest.

You don’t take advantage of the card’s rewards or benefits. You might have signed up for an airline credit card to get a bonus. Or you got a new card so you could transfer a balance. No matter what, you might not be able to use the card after the initial promotion ends. If you have a credit card that you never use, it might be best to cancel it so you don’t have to pay extra fees.

Why you shouldn’t get rid of your credit card

Cancelling a credit card isn’t always a good idea, but there are times when it makes sense. Before you close a card, think twice for the following reasons:

Your credit card is the oldest account you have with credit. If the card you want to close is the oldest one on your credit report, closing it will hurt your credit score a lot. If you’re planning to buy a house or car in the next year or so and need a good credit score, you might want to keep the card open until after you get the loan. If not, you might have to wait until your credit score goes back up before you can qualify.

You no longer need a credit card because you paid off your debt. You might think you don’t need a credit card anymore if you’ve paid off your debt. But having a credit card isn’t just convenient; sometimes you need one. Some hotels and car rental places need a credit card on file if you travel. If you don’t have a credit card, you might be able to use a debit card, but the company might hold a lot of your money.

You don’t often use your credit card. Even if you don’t use your credit card often, it can be helpful to have one on hand, especially in case of an emergency. A credit card can help you pay for unexpected costs like car repairs or medical bills.

You feel like you already have too many credit cards. Even though it can be hard to keep track of multiple cards, there’s no need to cancel them. If you close your cards, you’ll have less available credit and hurt your credit score, so you might want to keep them open instead. You can use one or two cards regularly and keep the others on hand in case of an emergency. Cards usually stay active as long as you use them once a year, even if it’s just for a small purchase.

You want to switch credit cards. You might think it’s a good idea to close a card if you want to open a new one. But you don’t need to close your current card unless it has high fees. You can get a new card and keep the one you already have just in case.

How to Close a Credit Card in a Safe Way

If you’ve thought about the pros and cons of closing a card and decided to go ahead, here’s how to do it in a way that won’t hurt your credit score too much:

Think about the timing. If you want to apply for another type of credit, like a home loan, don’t cancel the card until after the loan closes. If you don’t, canceling the card could hurt your credit score, making it harder for you to get a loan.

Talk to someone about your debts. Set up a meeting with a non-profit credit counseling agency if you are having trouble with debt. A debt counselor can help you make a budget and a plan for paying off your debts.

Use any rewards or benefits you have. If you close your card, you might lose any reward dollars, points, or miles that you haven’t used yet. Before you cancel your card, make sure you cash in your rewards.

Pay off what you owe. Check the balance on your card and pay it off in full to avoid getting hit with late fees.

Talk to the card’s owner. Call the card issuer to close the account and ask for confirmation to be sent to you by email or mail so you can keep track of it.
Check the report on your credit. You can check your credit report for free at AnnualCreditReport.com to see if the card was closed correctly. It can take up to two or three months for a closed account to be marked as such. After that, if the card is still listed as active, contact the card issuer to get your credit report changed.

Taking Care of Your Credit

Closing a credit card can hurt your credit score in a big way, so it’s important to think about the pros and cons. Depending on your credit history and financial goals, it may make sense to put off canceling your card for now.

If you do decide to close your credit card account, make sure you use up all of your rewards before you do so. You can also check your credit report to make sure the account has been closed.

Leave a Comment