If you’re wondering how to cancel a credit card, it’s best to think over the decision first. In fact, the consequences of closing a credit card account could stick to your credit scores and reports for a long time.
Cancelling a credit card might seem like a simple way to move on to a new, better option — or maybe you want to end a relationship with a card that you now realise was too costly and partly to blame for your debt problems. But a closed credit card account can stick out like a sore thumb on your credit reports and affect your scores considerably.
That doesn’t mean it’s always a bad idea to close a credit card account. But it’s important to know what you’re getting into first. Let’s go over some things you should think about when considering closing a credit card and how it can affect your credit history.
- Consider the effects on your everyday life
- Strongly consider the impact on your credit
- Consider alternatives to cancelling your credit card
- Cancel your card
1. Consider the effects on your everyday life
If you currently rely on your credit card for common expenses, cancelling a card could prompt you to change many of your habits. And even if you have other cards, it’s a good idea to think about how you’ll pay for things after cancelling your main card.
For instance, if you use your credit card for day-to-day expenses at supermarkets, restaurants and petrol stations, you’ll have to figure out a new method of payment. And if you have recurring payments on your credit cards for subscriptions like your streaming services, you’ll want to decide if you want to keep them or come up with an alternative payment method.
If the card you used previously at those locations earned rewards, you might also be losing out on similar benefits moving forward. If you plan to use another card, look into its features and see if it’s an equally good option.
On the other hand, you might have already decided you prefer to pay with bank transfers or cash. But each of those options comes with its own specific uses and potential issues, too, so consider what that future might look like before acting.
2. Strongly consider the impact on your credit
There are seven major factors that influence your credit scores: payment history, credit limit, time on electoral roll, credit utilisation, historic utilisation, age of credit and whether you have a mortgage.
Let’s take a look at how cancelling a credit card could affect some of the major credit factors.
Payment history
Making on-time and in-full payments consistently is a common way to use a credit card to build your credit history. If you’re able to do so, this can be a straightforward way to help your credit history.
On the other hand, if you think you might have trouble paying off your balance every month over the long term, closing the card account could protect you from future activity that would harm your credit history. But if you currently have an outstanding balance on your card and want to close the card account, you’ll need to discuss your options with your provider first. You can always cut up your physical card and stop using it as a short-term fix to cut your spending, but this won’t close the credit card account, and another card could be issued to you at a later point.
Credit utilisation
Credit reference agencies track the amount of money you owe on your accounts to ensure you’re not using too much of your available credit. Known as your credit utilisation rate, this percentage compares the amount of money you owe to the amount of credit that’s available to you. A lower rate is usually better.
If you can only afford to make the minimum payment each month and you’re carrying a balance, your credit utilisation rate will stay higher and could hurt your credit scores.
But closing your credit card might make this rate worse if the closure of the account significantly lowers your total available credit. If you’re planning to close a card reducing the amount of credit available to you, you could see a major impact to your scores.
Age of credit
A longer active credit history is usually better for your credit scores. In general, lenders like to see that you have a track record of managing credit effectively over time.
But when you close a credit card, that card stops ageing and can’t grow. That will cut down your active credit history if you’ve had that card for a while.
And if the card you’re thinking of closing was also your first credit card, we strongly recommend keeping it open even if you rarely use it. As your oldest line of credit, it will have the biggest impact on the length of your credit history.
Historic utilisation
Managing a number of credit accounts at the same time can show lenders that you’re a reliable borrower. So if you cancel a card that you’ve had for a long time, it could affect your credit score.
One reason your score could take a hit is because your overall credit utilisation may rise. Credit utilisation is the amount of revolving debt you currently have compared to your total credit limit. We suggest keeping your utilisation below 25% to get the most from this credit factor.
3. Consider alternatives to cancelling your credit card
Even if closing a credit card won’t affect your lifestyle or credit profile too much, it still might be easier not to close the card. In fact, there are several alternatives that could end up being less risky.
● Put the card in a drawer. Maybe you’ve decided you just don’t like using credit cards. If that’s the case, consider keeping the card and putting it away, or cutting up the physical card, instead of closing the credit card account. This course of action might seem obvious, but keeping the account open while removing the temptation to use the card could be a straightforward way to keep the benefits of your credit card account without harming your credit score.
● Find another way to transfer debt with a credit card or a personal loan. If you want more resources to help you tackle your debt, StepChange and Money Advice Service are organisations that may have resources that could be useful. If you’re trying to get out of credit card debt and don’t want to add new payments, you might be considering negotiating to close the card account with your provider. But you might also be able to pay off your debt with a balance transfer credit card or personal loan, in more regular instalments. These options might offer a more manageable way of paying off your debt.
4. Cancel your card
If you’ve considered all your options and still want to go through with cancelling a credit card, here’s how to do it.
● Pay off your remaining credit card balance. Think of cancelling your card as a clean break.
● Cancel recurring payments. If you’ve set up any recurring payments for your bills or subscriptions, make sure to update your payment information.
● See if you need to redeem your rewards. Rewards sometimes expire after your card account is closed, so check your card’s terms to see if you need to use your rewards before cancelling.
● Call your credit card provider. You should be able to find the number for customer service on the back of your card. To start the process, tell them you’d like to cancel your credit card.
● Go to your credit card’s website. Alternatively, if you don’t want to speak with customer service over the phone, you might be able to cancel online after logging into your account. If you cancel online, make sure you have received an email confirmation of the changes to your account before you leave the webpage.
● Double check your credit reports. If you don’t want to take your credit card provider’s word for it, you can comb through your credit reports to make sure they reflect that your card has been closed. It can take up to seven weeks for a closed account to be reflected on a report.
● Cut it up. A simple but important step. Cutting up your credit card can help make sure no one tries to use it after it’s been closed.