What happens if you cancel a credit card?

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There are countless reasons why you might consider closing an old credit card. Maybe you’ve spent too much on credit in the past and want to avoid going down that rabbit hole again. Or maybe you’re ready to upgrade to a new rewards credit card and plan to break your old one. You may want to avoid the annual fees on cards you no longer use.

Whatever your reason, remember that closing an old credit card account can have repercussions.

What actually happens when you close an old account?

Closing an old credit card account involves much more than a pair of scissors. Once you decide to close a credit card, you must call your card issuer using the contact number on the back of your card.

This is what happens next:

Your card issuer will ask you some questions about your account

Occasionally your credit card company will cancel your card without any questions asked, but other times they will try to convince you to change your mind. Sometimes they even redirect you to a customer retention department whose sole purpose is to entice you to keep your card. They may even offer you special perks to convince you to stay, including credit card rewards or balance transfer offers.

Also: The Best Credit Cards for Good Credit: Reap the Benefits

If you really want to cancel your card, it’s okay to decline these offers and politely proceed with the closure. Remember, closing an account means closing it for good.

The closed account is reported to the credit bureaus

Within one month of closing your account, the action will be reported to the credit reporting agencies: Experian, Equifax and TransUnion. However, closing an account does not mean that its positive impact is over. According to Experian, accounts without negative numbers can remain in your credit history for up to 10 years.

As long as your credit card bill has no negatives, its impact will be felt for many years to come. That’s true whether you close it or not.

Your credit score may drop temporarily

Closing an account can negatively impact your FICO score – the score most commonly used by lenders.

The FICO scoring method is based on ratings in five general categories: payment history (35%), amounts due (30%), length of credit history (15%), new credit (10%) and credit types used (10%).

The factors that can be affected when you close an account are 1) the amount you owe in relation to your credit limits – otherwise known as usage – and 2) the length of your credit history.

Usage: If you’re debt-free on all your bills, your usage is zero across the board. If so, closing an old account won’t change your usage at all. But if you owe money to other credit cards or loans, closing an old account with a high credit limit can immediately increase your usage.

Let’s say you have two credit cards with a limit of $5,000 each and you have $2,000 in credit on you — that means you’re using $2,000 of the $10,000 in available credit, so your utilization rate is 20%. However, if you close one of the cards, you’re suddenly using $2,000 of the $5,000 in total credit, and now your utilization rate has increased to an unsavory 40%.

Length of credit history: Closing an old credit card can definitely lower the average age of your credit history, especially if the card you close was established a long time ago. According to Experian, this is another reason why your score might drop temporarily if you close an old account.

Cancel a credit card?

To close or not to close, that is the question. If you don’t have a compelling reason to close your account, you may want to keep it open and cut the card into pieces or put it away in a drawer.

Keeping an old account open can extend the average age of your credit accounts over time, and it keeps your usage as low as possible. And if you don’t close an old account, you don’t have to worry about the closure negatively impacting your credit.

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If for some reason you still insist on closing your account, here’s what you need to do:

Step 1: Cancel any direct debits associated with the card

Before closing your credit card, you must cancel all automatic payments to the account, including gym memberships, subscriptions, or utilities that you have automatically billed to your card. You want to transfer these expenses to another credit card or payment method. Otherwise, you could incur late fees or penalties — or even a dent in your credit report — when these services attempt to charge the canceled credit card.

Step 2: Pay your credit card balance in full

Before taking out your credit card, you must pay off your balance in full. Make sure all pending purchases are posted before sending your final check or making your final payment online. Once your final payment has been credited and your account balance has fallen to zero, you can proceed.

Step 3: Redeem all your rewards

If you close an account, you’ll lose any credit card rewards you’ve earned along the way. Before you call your card issuer to close your account, you want to redeem your rewards in the most logical way. Usually the easiest redemptions come in the form of cashback or gift cards.

Step 4: Call your card issuer to cancel

Calling the number on the back of your card is the easiest way to get in touch with the department that will actually close your account. Remember to be firm in your decision if you really want to close your account. Usually the customer service representative closes your account without too much hassle or stress.

Step 5: Check your credit report to make sure the cancellation went through

To follow up and make sure your account has been closed, you can view your free credit report at AnnualCreditReport.com or log in to a free account with Credit Karma. Either way, you will definitely want to check if your account has been closed.

Step 6: Follow Up, If Needed

If your credit report doesn’t show a closure within two or three months, it’s a good idea to contact your card issuer. Call the number on the back of your card again to make sure your account has been closed as requested. If you are not satisfied, you may also consider sending a certified letter stating your request to close your account to the address on the back of your card.

[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]

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