Nowadays, there are various reasons why you might decide to cancel your credit card, such as wishing to reduce the number of credit cards you have, attempting to rely less on credit, getting divorced, or discovering another card that better meets your demands.
Whatever your motivation, you should be aware of the procedures for cancelling your credit card to avoid making mistakes. Because cancelling a credit card can be more stressful than necessary. Its procedures require you to contact the credit card issuer, which may take longer to respond and verify several documents and reports.
What are the reasons behind closing/cancelling a credit card?
It frequently happens that a bitter ex would rack up excessive charges on a joint card.
This is just one of the reasons why most divorcees close their joint credit card accounts after a divorce or legal separation.
Effectively accomplishing this helps permanently terminate a joint account and remove you from liability. Additionally, it is advised since doing so can shield your credit scores from future damage from your former spouse’s debt.
2. Increase in yearly fees:
You may consider cancelling a card if the issuer charges you a hefty annual fee for a service you never use. However, the expense could be justified if the account offers advantages over and above the annual charge, such as travel credits and bonuses.
3. Alternatives with better rewards:
Perhaps you applied for a credit card hoping to earn rewards, but you’re having second thoughts now. Even worse, you might miss out on incentives because you’ve discovered a different card offering better ones. When you have made multiple comparisons and determined that the latter is superior, it is time to go on and switch cards.
4. Loss of self-control:
Some people are not able to resist the urge to utilize their credit cards. Credit card overspending can result in poor credits that rise daily due to high APR interest rates, potential late fees, and penalties for exceeding the credit limit. Closing your credit cards, even those with unpaid balances is a wise option for such people who lack self-control.
How To Cancel Your Credit Card?
You can contact your credit card issuer and cancel your credit card at any time, but there is a procedure you should follow to avoid missing out on anything. Which is:
- Cancelling recurring payments:
- Cancelling any pending payments:
Make sure you deactivate any credit card pre-authorized payments, subscriptions and services.
If you are the kind that uses your credit card to make pre-authorized payments, get in touch with the company you’re paying for and establish new payment arrangements or discontinue the service. If you do not, you will be charged for these services. Furthermore, even though you terminate your credit card account, your charges may increase and charge interest until you pay them.
- Clearing out your balance:
You will not be able to cancel your credit card if you still have money in it. This is why you must check that your credit card amount is zero before cancelling your credit card.
If you have a negative balance( either overpaid or recently received a refund), you can ask your credit card company to send you a cheque.
- Alerting Your Authorized Users:
Any authorized users won’t be able to use the credit card after it has been closed. Give them a notice in advance that the account is being closed to spare them the humiliation of having their credit card denied at the register when they eventually use it.
- Redeeming available points:
Make sure you use your credit card points before cancelling your account. If you don’t, you eventually lose them when your account is closed. Therefore, try to exchange or redeem those points for stuff like gift cards or statement credits.
Now, once you have followed all the requirements above, you can cancel your credit card account by following these steps:
1. Contact your Credit Card Issuer:
Most credit card companies will permit you to deactivate your card online, via phone, or in person at the bank.
However, you can contact your credit card company by phone or mail and request that your credit card account be cancelled. The customer service phone number can be found on your credit card, monthly statement, or the issuer’s website.
If you want to contact the issuer by letter, the mailing address can be found on your monthly statement or on the issuer’s website.
2. Cancellation Confirmation:
After cancelling your card, make sure to seek written confirmation.
When you do, your credit card company will give you a letter confirming that your credit card has been closed. After receiving the confirmation mail, you can go on to destroy your credit card. Also, just in case, make sure you store a copy of the confirmation mail.
3. Verify the credit card statement:
Even after you close your account, some recurring transactions can still be reflected on your credit card statement. It’s always possible that the cancellation wasn’t implemented correctly. Therefore, you must verify the closure through your updated credit card statement.
4. Verify your credit report:
Even though you might already have written confirmation that your account has been cancelled, you should double-check by verifying that the closure of your card account is shown in your credit report. Give the company that issued your credit card adequate time to update the credit bureaus. Typically, this takes about 30 days.
Does cancelling my credit card affect my credit score?
There are certain risks to be considered when cancelling your credit account which can impact your credit score:
- Credit Utilization Ratio:
Closing a credit card account might harm your credit utilization ratio, potentially lowering your credit score. The amount of revolving credit you currently utilize divided by the entire amount of revolving credit you have available is your Credit utilization ratio.
In other words, it’s your existing debt divided by your credit limit stated as a percentage. It is determined using your credit reports. The more available credit you use (according to your reports), the lower your credit score will be.
However, before you close a credit card account, you must pay off your entire debt and clear your balance. This is because closing a credit card won’t lower your credit score if all of your credit cards have $0 balances on your credit reports.
- Length of Credit History:
The length of your credit history is another factor that affects your credit score. If your other credit card histories are very recent, your credit score can suffer if you decide to cancel your oldest credit card.
- New Credit:
It’s not always a good idea to close accounts immediately after opening them. Closing your account prematurely might signal risk to lenders, which can have a negative effect on your credit score or the possibility that another lender will accept you.
- Credit Mix:
Lastly, the many types of credit you have access to can be significant, even though it only has a negligible impact on how your credit score is calculated.
For instance, if you close your single credit card, the credit bureau will have to base its score on your other credit cards. Therefore, having many different credit cards is beneficial, and cancelling one will negatively impact your credit score.
What can you do to cancel a credit card without damaging your credit?
There is one way to cancel your credit card without damaging your credit. Nothing alters your credit score when you change credit cards. So, you can typically only switch to a small set of specific cards within a particular credit card company’s portfolio. However, this is only true of some specific credit card issuers.
For instance, suppose you have a bank-issued premium cash-back credit card, you might switch to a credit card with cashback and no fees. While technically, you aren’t cancelling your credit card, you are obtaining a new one without affecting your credit score.
Though switching credit cards may appear an unusual tactic, it can be handy for consumers who wish to continue receiving welcome bonuses without requesting new cards.
Can you close a new credit card that you just got?
It is feasible to close a credit card that you recently opened, but keep in mind that the impact on your credit score that occurred when you created the account will remain in effect.
Additionally, if you’ve already got the welcome bonus and want to cancel immediately, the credit card company will probably not be impressed. Because doing so would give the impression that you are a thoughtless customer. They might flag your account, which would prohibit you from receiving future bonuses and perhaps from getting accepted.
Avoid terminating a credit card account without justification. If you manage your credit cards correctly, having a number of them won’t necessarily lower your score considerably. However, to minimize or eliminate any damage to your credit score, if you must cancel a card, try your best to pay off your credit card balances before doing so (ideally to zero).
Also, keep your credit portfolio as strong as possible when cancelling a card. Because doing so might prevent damage to your credit score in various ways.
Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.