Keeping credit card accounts open can boost your credit score, but there are some situations where closing a credit card is the better move.
If you’re struggling to pay annual fees or interest rates, regularly overspending, or have too many open cards it may make sense to close the card.
When closing a card, removing it from your wallet or cutting it up isn’t enough, and you might get stung with fees or a ruined credit score if you don’t close your card correctly.
To help you navigate the process, we’ve broken down closing a credit card into seven easy steps.
1. Consider How Closing It Will Impact Your Score
According to TransUnion, three things affect your credit report when you close a credit card: average credit age, credit utilization ratio and credit mix.
- Lowers credit age: The older your credit is (if it’s good), the higher your score will be. If you’ve had a credit account for a long time, closing it could hurt your score. You should try not to close your oldest account since it could severely impact the average age of your credit.
- Raises credit utilization ratio: When you close a credit account, the total amount of your available credit decreases.
- Reduces your credit mix: Lenders look to see if you can handle different kinds of debt, such as credit cards, auto loans, student loans and mortgages. If you close your only credit card, your credit mix is less diverse—lowering your credit score.
What Information Stays on Your Account After You Close a Card?
Closing a credit card doesn’t forgive or delete the payment history associated with it. Any negative marks, such as debt settlement, can stay on your report for seven years. Positive information stays on your report for up to 10 years.
If you have negative marks on your credit account, try to bring your account to good standing before closing it. For example, pay off the balance on the credit card with a lump sum or timely monthly payments.
2. Use Up Your Credit Card Rewards
When planning to cancel a credit card account, check the balance of your points and rewards. You might be able to keep points issued by an airline or hotel after a card is closed, but not always.
You won’t be able to keep the points issued by the credit card company after you close your card. If you need to, check whether you can transfer rewards and points to a friend or spouse’s card, or to an alternative card you have with the same bank.
If you have unused rewards, you’ll want to cash out your points as a check, book a flight or redeem your rewards in another way so you don’t lose the value.
You may need to accept losing some rewards if you haven’t met certain requirements, such as spending a set amount of money.
3. Update Any Automatic Payments on the Card
If you’ve set up automatic payments linked to your credit card, such as your utilities, make sure you switch the payment method.
If you don’t switch automatic payments, you could be charged a fee when the merchant tries to process a payment.
4. Pay Off Your Credit Card Balance
Closing a credit card when you have debt affects your credit utilization and can damage your credit score. When you close a credit card, your credit utilization rate increases because you have less available credit in comparison to the amount of debt you have.
You can open another card as a replacement, giving yourself more available credit. Having other cards open can keep your utilization ratio low and show lenders you’re not a credit risk.
Keep in mind that even if you close a card, you need to pay off the balance. It’s best to do this before closing the account. You could also transfer the balance onto another credit card while the card is still open.
When you’re ready to pay the balance off, double-check to make sure you know the full “payoff” amount. This amount includes recent purchases, interest since your last bill, plus any fees. Remember, your credit card won’t be closed completely until you pay off the full balance.
5. Contact Your Credit Card Issuer’s Customer Service
To officially close the credit card, you’ll need to call the credit card company or log in to your online account. Confirm that your balance is zero and tell them that you’d like to close your account.
Be aware that a customer service representative might try to persuade you to keep the card open—offering you perks or a lower interest rate. Stick to your decision and remind them politely that you wish to cancel the card. Make sure you write down the day and time you called and the name of the person you spoke to.
6. Follow Up in Writing
Canceling by phone or email is usually sufficient, but sending a letter is proof that you asked for the account to be closed. Your letter should include the following:
- Credit card number
- Note that you requested for the account to be closed
- Date and time you made the request
- Documentation that you paid off your account balance
Make sure to keep a copy of the letter for your records.
7. Confirm the Account Was Closed
Even after closure, it’s possible that some payments or interest haven’t been charged to your card yet. To be certain there’s nothing outstanding, watch for your final statement. Be sure it shows that your balance is paid in full.
Your account should also show as closed on your credit report. If it isn’t showing up as closed after two or three months, get in touch with your credit card company.
Once you’ve confirmed everything is closed and paid, you can finally dispose of your card. Make sure to destroy the magnetic strip and chip. The most effective way is to use a shredder.
What to Do if Your Closed Card is Still On Your Report
It’s possible that a credit card account can remain open on your credit report by mistake. If this happens, contact the credit bureau and request the information be changed. You should also inform the credit card issuer—they’ll be obliged to contact all three credit bureaus with the correct information.
Learning how to close a credit card the right way can help you avoid costly mistakes. Even a single error can cause long-term damage to your credit history. Ensure you have an accurate report by reviewing your free reports or getting help Lexington Law Firm. Contact one of our credit consultants today to learn more about our credit repair services.