How To Cancel a Credit Card—Prerequisites, Steps, and Consequences
Canceling a credit card seems pretty straightforward, but it may not always be the best course of action, even if you no longer want to use the card. Before proceeding, you should factor in whether closing it will negatively impact your credit score or credit history.
If you’re unsure of how to cancel a credit card and what the action entails, this guide is for you. We will discuss:
- What is the best way to cancel a credit card?
- What happens when you close a credit card account?
- How does the decision impact your financial profile?
What To Do Before You Cancel Your Credit Card
Before closing a particular credit card, you should typically:
- Pay off the outstanding balance—While you may be able to close a credit card account with a remaining balance, it is recommendable that you pay it off in full and start with a clean slate.
- Take stock of the redeemable rewards—Determine whether you have rewards points. If possible, transfer them to another card or use them so they don’t go to waste.
- Cancel recurring billers—If you’ve set a particular credit card for a recurring payment, update your information accordingly.
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How To Close a Credit Card Account Permanently
To cancel your credit card and close the account permanently, these are the typical steps to follow:
- Contact your credit card provider to request a cancellation. Most card issuers require you to call the customer support number on the back of your card, but sometimes, you can do it online or through an app.
- Enter or dictate your card number to talk to a representative. If you’ve lost or misplaced your card, you may have to provide additional details (like your Social Security number) to verify your identity.
- Confirm that your outstanding balance is paid off. You can also complete a balance transfer to another account before closing the card.
- Follow the provided instructions to close your card. In most cases, you’ll be asked to write a confirmation letter or email stating your intention to cancel your credit card.
- Verify and store the written confirmation from the issuer that the card is closed.
Approximately two months after receiving the confirmation letter, check if your credit report shows the card as closed. If the information does not reflect the current status of your accounts, contact the credit bureau or the card issuer for clarification.
What Happens When You Cancel a Credit Card?
Closing a credit card disables access to the credit line extended to you. You won't be able to use the card for purchases and may forfeit the reward points, miles, or similar benefits you’ve earned. If you have an outstanding balance on the card, you will:
- Receive monthly statements until you pay off the complete amount
- Continue accruing interest on the amount due
- Accrue fees or penalties accrued during the period
The terms and conditions will vary among credit card issuers, so check your cardholder agreement for details. For example, closing an American Express Membership Rewards® credit card automatically forfeits your points unless you transfer them to another Amex credit card. In contrast, Discover® allows their clients to swap their points for a statement credit that may reduce their outstanding balance.
Many users are skeptical about closing their credit cards because of the effect it may have on their credit profile. Even though the concern is valid, you may be able to close your account without hurting your credit score or history. Refer to the following sections to understand where you stand.
Source: Tima Miroshnichenko
Does Closing a Credit Card Hurt Your Credit Score?
Your credit score is a three-digit rating that is influenced by five components presented in the following table:
Closing a credit card may significantly affect the credit utilization rate and length of credit history.
Impact on the Credit Utilization Rate
Credit utilization represents the percentage of credit you have used against your total credit limit across all cards. Ideally, your credit utilization percentage should not exceed 30%, as higher rates suggest you’re running on more debt than what’s considered standard. Closing a credit card can potentially increase your credit utilization rate and decrease your credit score.
Here’s an example with three cards assigned with the following limits:
- Card A—$1,000
- Card B—$2,200
- Card C—$500
Let’s assume that the total debt on these cards is currently $1,000. If you choose to close card A, here’s how the action will impact your credit utilization rate:
Since closing the card increases your utilization rate beyond the reasonable limit of 30%, the action may lead to a decline in your credit score.
If you want to close a credit card without hurting your credit score, compare your available limit and corresponding debt to ensure the utilization rate stays low. You may also consider the following to balance the overall rate:
- Request an increase in credit limit for a card.
- Pay the balances on your other credit cards.
Impact on the Length of Credit History
The length of your credit history is determined by several factors, including:
- The age of your oldest and newest accounts
- The average age of your accounts
Keeping your accounts open for a long time is productive for your credit score. Still, it’s worth noting that closing one account may be insignificant if your other accounts are in good standing. If you frequently open credit card accounts only to close them within a year, your credit score may take a hit.
When Does Canceling a Credit Card Make Sense?
While canceling a credit card has consequences, it may be the right thing to do for your financial health. Here are some situations when closing a credit card is the best option:
- If you’re a victim of a credit card theft or fraudulent transactions
- During divorce proceedings, especially if you and your spouse hold the credit card jointly
- When you don’t use a credit card but pay hefty annual fees
- If you use too many cards and cannot manage them
Debt management is also one of the prominent reasons why some people cancel their credit cards. According to the Federal Reserve Bank of New York, the total credit card debt reported in the first quarter of 2023 was $986 billion, an increase from Q4 2022. This trend is unusual—the total outstanding balance usually declines in the first quarter of every year.
The data implies that people have turned to credit cards to maintain financial stability amidst rising inflation and interest rates, which has resulted in debt.
Why Paying With Debit Cards May Be a Better Alternative
Credit cards increase your spending power, giving you access to the money you don’t have, but they can also get you into debt. Debit cards are safer if you want to avoid debt and save on interest charges.
A debit card draws money from your checking account. You can only spend within your current means and avoid racking up debt. Even if you are a credit card user, consider conducting transactions with a debit card to keep your finances under control.
How To Make Debit Card Payments Secure
While using debit cards is convenient, you should take additional steps to protect your card and credentials from theft. Having a debit card compromised increases the risk of fund loss because the card is connected directly to your bank account.
Protecting your debit or credit cards from physical theft is straightforward but you should take additional steps to secure them online. Disclosing your card data on shopping websites is not wise because hackers often target e-commerce vendors to steal information.
Instead of using your credit or debit card online, we recommend getting a Privacy Virtual Card to keep your digital transactions safe. A virtual card with temporary credentials does not expose your actual card data to merchants. If a merchant’s website is attacked, only your virtual card data will be revealed, while your actual card or bank information will stay hidden.
Why Get a Privacy Virtual Card
Privacy, a Better Business Bureau® accredited company, is one of the most reliable virtual card services on the market. It offers a safe and seamless way to complete online transactions with virtual cards in the Visa® and Mastercard® networks.
You can create virtual cards by linking your checking account or debit card to Privacy. Understanding the risk of data breaches, the company enables you to create Merchant-Locked and Single-Use Cards as outlined below.
Source: Igor Miske
A Merchant-Locked Card locks to the first merchant you use it at. If the card number gets stolen, it will be invalid for shopping at other online vendors. When shopping on less trusted websites, create Privacy’s Single-Use Cards that automatically close after the first purchase.
Another benefit of using virtual cards from Privacy is that you can close or pause them at your convenience without canceling your debit card or checking account. It’s a convenient option if you want to stop paying for a subscription, as Privacy will decline all charges to the paused or closed card.
You can also set a spending limit per transaction, month, or year to keep your expenses in check.
Download Privacy’s Google Chrome, Firefox, and Safari browser extensions for faster checkouts. The extensions autofill card data on the checkout page, enabling you to complete fast purchases without reaching for your wallet or memorizing card numbers.
How To Request Privacy Cards
Follow these steps to get started with Privacy Cards:
- Access the signup page
- Provide the details necessary to verify your identity
- Request your Privacy Virtual Card
Privacy's base tier is free for domestic transactions and enables you to generate up to 12 virtual cards each month. The platform also offers paid plans if you would like to get additional cards (up to 60 monthly with the highest plan) and additional features. The Pro ($10/month) and Teams ($25/month) plans also come with 1% cashback (on eligible transactions totaling up to $4,500 per month), boosting your earnings potential.
Monitoring Your Privacy Account
Privacy lets you control your account and transactions with a built-in fraud detection system and optional push notifications that inform you of every payment.
Source: Blake Wisz
Privacy is a PCI-DSS-compliant company that takes prescribed steps (like using strong cryptography and regularly updating security systems) to keep your information safe.
If you want additional security features, the platform offers a free 1Password integration to help you store your passwords and financial data in one secure, easily manageable vault. Sign up to get started.