Breaking Up With Plastic? How to Cancel a Credit Card the Right Way
Put the scissors down.
Although you may be ready to cancel your credit card, it’s not as easy as simply cutting the card in tiny pieces (although that is one of the steps).
But you’re in good company if ditching the plastic seems like a good idea — especially if you’ve stopped using plastic recently.
Outstanding revolving credit, which includes credit cards, decreased by more than $116 billion in 2020, according to the Federal Reserve.
And more than four in 10 millennial travel rewards cardholders say they’ve closed a card since the pandemic began, according to a Value Penguin survey.
But should you close a credit card account? And if so, how can you cancel it the right way — you know, so you don’t get socked with unexpected fees or discover three months later that the number’s been stolen?
Give us some credit — we wouldn’t make you go it alone (sorry, couldn’t help myself). Here’s our guide to canceling a credit card.
Should You Cancel Your Credit Card?
We get it: If you’ve paid off your credit card, this may seem like a good time to cancel it. Ditching the plastic leaves you with one less thing to worry about, right?
That may be true, but closing that account could end up hurting you in the long run.
Why Closing Your Credit Card Account Might Be a Bad Idea
Credit cards often get a bad rap — and rightfully so if you’re paying double-digit interest and getting hit with late fees. But for those who’ve used their credit responsibly, canceling an account can damage your credit score. Here’s how.
Your payment history accounts for approximately 35% of your credit score. Making credit card payments on time every month positively contributes to this.
Eliminate the card, and you reduce the number of accounts that count toward your on-time payments.
This may be the strongest argument for holding onto your credit card.
The credit utilization ratio represents how much of your available credit you actually use. To calculate yours, divide what you owe across all your credit accounts (think: credit cards and other credit lines like a home equity line of credit) by the total credit limits for those accounts.
Closing a credit card could send your score up — way up.
Worried you’ll return to your old spending habits and sink back into debt? We have expert strategies to help you stay out of debt after you’ve paid off a credit card.
For example, let’s say you had two credit cards — each with a credit limit of $8,000. On the first card, you had a balance of $4,000; on the second card, you had a balance of $1,000. Your credit utilization ratio was $5,000/$16,000 = .3125 or 31.25%
Most experts recommend a credit utilization ratio of 30% or less, so your score is not great.
Then you paid off the second credit card’s balance, which improved your ratio to 25% ($4,000/$16,000). Yay!
But if you closed the second credit card account, your credit utilization ratio would skyrocket to 50% ($4,000/$8,000). Yikes.
Considering credit utilization counts for approximately 30% of your score, it’s a wise idea to keep an account open if you want to keep your usage ratio low.
Length of credit history
Closing a credit card that you’ve had for years will lower the average age of your accounts in your credit history, which contributes approximately 15% to your score. And you can’t replace history easily — that only comes with holding onto an account over time.
Why Closing Your Credit Card Account Might Be a Good Idea
So what would be a good reason to close a credit card account? Losing the fees.
If you do decide to keep the credit card open, check out these three ways to protect a credit card you’re not using.
Many travel reward credit cards charge an annual fee. Paying a $95 annual fee might have been worth it a couple years ago. But after a year of trips to nowhere, you may be reconsidering the benefits vs. the cost associated with the card.
How to Cancel a Credit Card
After weighing the pros and cons, if you still want to cancel your credit card, we have a step-by-step guide for doing it in a way that will help save you from forking over extra fees and protect you from having your old account number stolen.
1. Pay Off or Transfer the Remaining Balance
Want to close a card when it still has a balance? You can ask your credit card issuer to freeze your account so you can’t make any new charges, but you’ll have to keep making payments until the balance is $0.
Next, you’ll need to cancel any recurring payments you have set up for the account. It’s best to gather at least a year’s worth of past statements to review what accounts are linked to your card. That way you won’t be stuck with a late fee because your annual home insurance premium didn’t get paid.
Check your credit card membership renewal date so you can time closing the card before paying the annual fee.
Even if you think you’ve remembered every account linked to the card, it’s best to wait at least a couple months and as much as a year to avoid surprises.
After you’ve paid off the remaining balance, you’ll want to continue checking your statements for the next couple months to avoid any residual interest you may have accrued.
2. Use up Your Rewards
If you have a travel rewards credit card and don’t have plans to travel anytime soon, all is not lost. Some issuers are extending the time before your points expire. You can use the points now to book a future trip.
For cards that allowed you to trade in points for a specific airline or hotel travel reward program, you may be able to continue to be a part of the program (and use those points) even after the card is closed.
Cards with flexible points may offer a cash back value or you may be able to transfer the points to another card that uses the same program or spend at least some of the points on gift cards instead.
If you haven’t already figured it out, you can’t properly close a credit card account in a day (or even a month). Look at the time as “cooling off period” to ensure this is a good financial decision.
The only way to know for sure: Review your credit card rewards agreement.
The point is (ha — get it?), you may not be able to redeem points for what you originally intended, but you’ll lose any leftovers when you close the account.
3. Contact Customer Service to Close the Account
Are you strong enough to say no? And should you?
After you’ve paid off your balance and used up your rewards, you’re ready to close the account, which means contacting your credit card issuer.
Those companies don’t like to lose customers — especially good ones who pay their bills on time — so don’t expect them to give up easily.
The representative you speak to will likely try to convince you to stay by telling you that you’re qualified for bonus rewards, qualify for a lower interest rate or can have your annual fee waived.
You can find the number for your credit card issuer’s customer service department by looking on the back of your credit card — yet another reason not to cut up the plastic too early.
If you’re canceling the card simply because of the annual fee, this potential offer could be enough of a reason to call your issuer.
But if you’re absolutely certain you want to close the account, a couple of firm, “Thanks, but no — I’m certain” responses should shut them down.
Before you hang up, request written confirmation that the account is closed with a $0 balance. This helps prevent nasty surprise fees or damage to your credit score for non-payment. When you receive the letter, keep it in your files in case a debt collector tries to convince you years later that you owe on zombie debt.
If you don’t receive the confirmation letter within a few weeks, send your own written cancellation letter.
Include your name, address and account number, and state in the letter that you would like your account closed and for the company to confirm you have a $0 balance — send it by certified mail to confirm the company received the letter.
4. Check Your Credit Report
Remember to check your credit report for proof that the company closed the account with a $0 balance.
You can — and should — get your credit report every year from the Big Three credit reporting agencies: Experian, Equifax and TransUnion. You can order yours for free every 12 months through the website annualcreditreport.com.
Make sure each of the reports lists your credit card account as closed and the account status as paid — again, you may want to wait a few weeks (or months) to ensure the credit card company reported the account was closed.
5. Cut Up the Old Card
Get out the scissors! But wait, you need to cut up your card properly. (Yeesh — we can’t even enjoy this?)
When you destroy your credit card, be sure to slice it so that neither your name nor your account number appear on a single piece and that you cut through the magnetic strip. (You can also use most shredders to get the desired effect.)
Some credit cards are made of metal and thus cannot be cut up. Contact your card issuer about how to properly destroy the card.
This helps ensure no unsavory types can dig the card out of the trash and attempt to use the old account.
But the good news is that once you’re finished cutting up the card, you can celebrate by tossing the pieces in the air like confetti — just don’t let them fall on your face and scratch you (sigh, always the killjoy).
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.