How to Cancel a Credit Card Without Hurting Your Credit Score

January 3, 2022
How to Cancel a Credit Card Without Hurting Your Credit Score

There are many reasons you may want to close a credit card. Maybe you want to simplify your personal finances. Or, perhaps you want to avoid an upcoming annual fee on a card you no longer use. Maybe you simply wish to reduce the temptation to spend by having one less card in your wallet. 

But does canceling a credit card hurt your credit? It certainly can, so it’s important to understand the consequences and how you can navigate the process. 

Does Canceling a Credit Card Hurt Your Credit Score?

Closing a credit card can have financial consequences.. Of course, the most obvious one is no longer being able to use the card. But canceling a card can also affect your credit scores. 

Closing a card can lead to a higher utilization ratio.

When you close a credit card, you reduce your total available credit, which can lead to a higher credit utilization ratio (or, utilization rate). Your utilization rate compares your current credit balances to your available credit limits.

Credit scoring models like FICO and VantageScore divide the sum of your credit balances against the sum of your overall credit limit to determine your credit utilization ratio. 

For example, you have two credit cards: a cashback card with a $2,000 credit limit and a $0 balance, and a travel rewards card with a $3,000 credit limit and a $1,000 balance. Factoring in your $5,000 overall credit limit, your aggregate credit utilization rate would be 20%.

$1,000 combined balance ÷ $5,000 available credit = 20% credit utilization ratio

If you close the cashback credit card (without paying down any of the outstanding $1,000 balance on the other card), your utilization rate would increase. This is because you have less credit available to you, yet you carry the same amount of credit card debt.

$1,000 combined balance ÷ $3,000 available credit = 33% credit utilization ratio

Keep in mind that credit scores consider your utilization rates on individual credit accounts (each account separately), as well as your overall combined rate (all accounts taken together). 

You can use a credit utilization calculator to keep close tabs on your overall utilization rate, as most financial experts suggest keeping your overall utilization below 30%. 

Closing a credit card can impact your credit history.

Your credit history accounts for about 15% of your FICO credit score. Generally, the longer you keep accounts open, the longer your credit history, which can help your credit score.

When you close a credit card, your credit score may take a temporary dip because it lowers the average age of your accounts. However, it should rebound if you continue to make on time payments on other lines of credit. 

Your payment history—which is different from credit history—also impacts your credit score. A closed account in good standing will remain on your credit report for 10 years after you close it. So, you should consider how you leave an account before you decide to close it. An account that’s in “good standing” means it doesn’t have a history of missed or late payments. If you had a few late payments, those negative marks will continue to report for seven years—even if you close the account. 

3 Reasons to Close a Credit Card (And 4 Reasons Not to)

Canceling a credit card is a subjective decision. While it’s important to understand how a closed credit card impacts your credit scores, it’s also necessary to weigh other personal finance factors. 

When to close a credit card

There are several reasons to say goodbye to that piece of plastic in your wallet. You may want to close a credit card if:

  • You pay unwanted annual fees. Credit cards can be appealing from a rewards perspective, but sometimes they carry high annual fees. It might make sense to cancel an unused credit card if it’s costing you more than it’s earning you. 
  • You have a history of overspending. Credit cards make life easier—but that convenience can be dangerous. If you tend to overspend when you have access to credit, you may want to close the card to keep yourself from making unnecessary purchases. 
  • You want to exchange cards. Not all credit cards are created equal. You might want to take advantage of another issuer’s promotional sign-up bonus. Or perhaps you want to exchange your current card for one without an annual fee. If you want to limit the amount of cards you carry, canceling an old card in favor of a new one might make sense.

When to keep a credit card open

On the flip side, you may want to keep a credit card open if:

  • To build credit. To build credit, you need to actively have credit in the first place. In that sense, no credit isn’t unlike bad credit. Keeping an account open can help round out your credit profile—even if it’s minimally used. 
  • It’s your oldest account. Since the length of your credit history impacts your credit scores, canceling your oldest credit account could hurt your scores down the road. 
  • You’re about to finance a large purchase. Keeping the concept of utilization rates in mind, a big purchase would raise your outstanding balance. Without an offsetting repayment, your utilization rate would increase significantly. For that reason, it might make sense to keep a card open until you’ve made (and paid off) your expected major purchase.
  • You’re indifferent about it. Sometimes, we glance at our wallets and notice a credit card collecting dust. We think, “Hmm, I barely use that card anymore.” This sentiment alone leads many people to consider canceling their cards. However, if you’re canceling simply for the sake of canceling, that might not be the wisest decision since you’d lower your total credit limit, which could potentially hurt your scores. 

Keep in mind, you don’t have to actively use a credit card for your credit scores to benefit. As long as the card is open and in good standing, you’re earning a positive history. 

However, your credit card company may eventually close your account due to inactivity. To keep your account open, ask the issuer what they’re cancelation policy is and make a purchase or two with the card within that time frame. Alternatively, consider using a card only for a small monthly bill, such as a streaming service subscription. This can also help you improve your credit by making on-time payments.

How to Cancel a Credit Card Without Hurting Your Credit

Although canceling a credit card can hurt your credit, you might prevent a dip—and avoid a financial headache—if you approach it the right way. 

1. Pay down or limit your use of other credit cards.

While lowering your available credit by canceling a card can lead to a higher utilization rate, that’s only true if your overall balance stays the same. Before you cancel your card, consider paying down your other cards, too. At the very least, try limiting your credit card usage to potentially minimize the increase of your utilization rate. 

2. Make early payments on your other credit cards.

Credit utilization depends on the balance reported to the credit bureaus. Ask your credit card issuer when they report balances and pay yours off before that date to maintain a low reported utilization rate. 

3. Transfer recurring payments.

It’s convenient to use credit cards for recurring payments. For instance, you may use your card to routinely pay utility bills and subscription fees. Before you cancel your card, remove your card from any recurring expenses to avoid missed payments and service disruption.

4. Ask the credit card issuer for a product change.

Some card lenders will let you keep your same account and credit limit, but allow you to “product change” to another one of their credit cards. Maybe you’re hankering for a vacation (or three), so you’re interested in travel rewards credit cards. This can also be helpful if you want to move away from a card that has an annual fee. 

5. Pay off your balance.

Closing a credit card won’t resolve any outstanding debt. If you leave a balance on your credit card past the grace period, your creditor could charge-off your debt. Typically, after 120-180 days of nonpayment, creditors charge-off debt, resulting in a major black mark on your credit reports. They may also send your account to collections, leaving you with additional fees and a second negative mark. If you’re canceling a credit card, make sure you have a plan in place to pay off any remaining debt. 

6. Redeem your rewards.

One of the benefits of using credit cards is accumulating rewards, such as cash back or airline miles. When you cancel your card, you might forfeit some of these unused bonuses—but that depends on your issuer’s rewards program. 

Generally, borrowers don’t lose travel-related rewards when they cancel because they would transfer into the applicable hotel or airline’s loyalty program. However, you might lose points accrued within the issuer’s program or cash back, so it’s worth redeeming your rewards before you cancel. 

7. Send a written cancelation request.

Although you should be able to cancel your credit card via phone or online, it’s wise to get written verification for your records. This can help protect against errors in your credit report and expedite potential disputes down the road. Ask your issuer to send a written notice of your account’s closure. You can also send a short confirmation letter that details your request to your card issuer. 

8. Check your credit reports.

After you cancel a credit card, check your credit reports to make sure everything has been reported accurately. You can check your credit reports for free (Plus, it’s free.) 

Consolidate Your Credit Card Loan With LendingClub

If you’re struggling to pay off your credit card balance or dealing with high interest rates, you may want to consider credit card consolidation. A debt consolidation loan allows you to consolidate all of your debt into one loan, pay off your credit card balances, and often reduce your interest rate. Plus, if you’re consolidating multiple lines of credit, you’ll have fewer payments to make each month. 

You can consolidate the debt from a credit card you’re considering canceling, however, make sure it makes sense for you. If you consolidate your debt and continue to spend on your credit cards, you may end up overburdened again. 

You can get prequalified for a credit consolidation loan and check your rate with LendingClub Bank without impacting your credit scores. 

The Bottom Line

Knowing how to close a credit card without hurting credit, when to close a credit card, and how to manage your credit card balances are important aspects of personal finance. Once you understand how your revolving credit utilization rate fits into the picture, you can make an informed decision about when it makes sense to keep your credit cards open and when it doesn’t.

By navigating these processes, you can minimize the impact of closing a credit card on your credit scores—and maybe even save money. 

Canceling a Credit Card FAQs

Is it bad to close a credit card?

Closing a credit card can negatively impact your credit utilization ratio, which may lower your credit score. However, borrowers should take a broader perspective when making the decision to close an account. There can be positive outcomes to canceling a card, such as avoiding an annual fee or preventing unnecessary, impulse purchases. 

How much does closing a credit card hurt your credit?

Your credit utilization and total debt is the second biggest factor in your credit profile. Closing a credit card could impact this ratio and cause a dip in your credit scores, but the total amount depends on several factors unique to your credit history. For example, if you have a history of on time payments and low utilization, canceling a credit card may not impact you as much as someone with high utilization and several missed payments. Keep in mind, your credit scores will also recover in time as you pay off debt. . 

What is an alternative to closing my credit card?

In some cases, it makes sense to keep your credit card open. If your card comes with an annual or monthly fee, you can ask to switch to a different card offered by your lender (commonly referred to as a “product change”). They might even be able to offer a better solution—like a higher cash back rate. 

If your card doesn’t charge fees, consider keeping it and simply not using it. This can help stabilize your credit scores by maintaining a higher total credit limit and lower credit utilization rate. But keep in mind, some credit cards may automatically close cards that aren’t in use. So make sure to check the terms before cutting your card. 

If I don’t use my credit card, will it be closed on its own?

Typically, yes. If you don’t use the card for several months to a year, your issuer may choose to close the account. Read the credit card disclosures carefully to understand the company’s policies around inactivity.

Is it better to close a credit card or leave it open with a zero balance?

Generally, it can be more financially favorable to leave an unused credit card open. When you close an account (even if it has a zero balance), you can negatively impact your credit utilization rate, which factors into your credit scores. However, if your unused card has an annual fee and you have a strong credit score, the benefit of closing the account may outweigh the score dips.

Does closing a credit card impact my credit history?

By canceling a card, you may lower the average age of your credit accounts and hurt your scores. That’s especially true if the account you’re considering closing has been open for a long time relative to your other accounts. But keep in mind, while your scores may decrease initially, they can typically rebound if you continue to make on time payments. 

How do I cancel a credit card that was never activated?

Depending on how long ago you applied for the card, the card issuer may have already canceled the card due to inactivity. Otherwise, contact the issuer’s customer service department to inquire about a cancellation. If your card imposed an annual fee, check to see if you ever incurred the charge and ensure you’ve paid it off before canceling.

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