Editorial Policy

How to cancel your card the right way

Miranda Marquit

February 17, 2015

Sick of the high annual fee on your credit card? Just paid down debt on that piece of plastic? As tempting as it may be, canceling a card isn't as easy as you'd think.

“Closing a card entails more than finding a sharp pair of scissors and cutting up a card,” says William “Sam” McLimans, senior vice president of cash management at Fidelity.

When you are ready to part ways with a card, it's important to consider the impact closing your account will have on your credit rating, as well as on other aspects of your finances. Bottom line: Don't rush into a decision.

Consider your credit score

“Closing a credit card may affect formulas used to figure your credit score,” says McLimans. Instead of just canceling, think about what your credit card means for your credit rating:

The amount owed compared to available credit is 30 percent of your FICO credit score, the most commonly used credit score model. That's why credit cards are critical to your credit score.

Called the credit utilization ratio, you want to keep the amount you owe as close to zero as possible. “Anything over 35 percent is considered high, and can impact credit scores,” says Kevin Gallegos, vice president of the Freedom Financial Network. So, if you have $10,000 available credit, you want to keep your revolving debt at least under $3,000.

What happens if you cancel the card with the lowest utilization? Say you have three credit cards:

  • Credit card 1: balance = $2,500, limit = $3,000
  • Credit card 2: balance = $1,000, limit = $2,000
  • Credit card 3: balance = $0, limit = $1,500

If you are paying down debt, it's tempting to cancel the card that is down to $0. But consider that your current credit utilization is about 54 percent (by adding up all your credit limits and dividing that by the total you owe across all cards). If you cancel that third credit card, your credit utilization shoots up to 70 percent. That's a big change, and one that can drag your credit score lower.

If you are committed to closing the account, pay down your debt on all of your cards before making the move.

What payments are associated with the card?

When you cancel your card, make sure you notify service providers who regularly bill your card (such as a gym membership fee) to avoid late fees and missed payments, which can negatively affect your credit score.

“If the card you want to close is used to make automatic recurring payments, first make changes so those payments continued uninterrupted,” says McLimans. Don't forget that in some payment systems, it can take 20 to 30 days for the change to take effect. Don't cancel your card until after you verify that your automatic recurring payments are being charged to the new card.

Also, double-check any saved cards with online merchants. It can be frustrating to try to complete a purchase only to discover that your payment is rejected due to a card cancellation. In some cases, it's just a matter of adding a new card.

If you shop frequently using a mobile device, be sure to change your card before you leave the house. This is especially important if you connect to Apple Pay or Google Wallet. You don't want to be stuck at the checkout counter, trying to use your phone to pay with an invalid card.

How to cancel your credit card the right way

Once you decide that you want to cancel your credit card, McLimans recommends calling customer service and talking to a live person. Take notes. Get the name of the representative, as well as the date and time of your call. You should make note of any payoff amount, and how long that amount is good for. If you don't make your payment within a specified period of time, interest charges can change the total payoff amount.

“If you offer reasons for wanting to close the card, the rep may respond with more favorable terms.”
–William “Sam” McLimans, Fidelity

Typically, you lose rewards associated with a credit card and keep the rewards affiliated with an airline or hotel. If you have a cash-back card, ask if you can apply any remaining rewards to reduce your payoff amount, or if you can receive a gift card for the amount. You might also be able to transfer your awards to another card, or to a partner loyalty program.

If you want to close your account because of a change in terms, it's possible to continue making payments under your current terms until the balance is discharged.

Deciding to keep the card

As you talk to the rep, remain open to sticking with the card. “You have no obligation to explain your reasons,” says McLimans. “If you offer reasons for wanting to close the card, though, the rep may respond with more favorable terms.”

If this is the case, McLimans suggests taking down the information and asking for time to weigh the new arrangement. You can usually call back later and accept the better terms if you decide you want to keep the card after all.

In order to negotiate better rates, it helps to be a customer in good standing, as well as to have a good credit score, says Jim Angleton, president at AegisFS. As long as you are polite, and you can make a case as a good customer, you stand a good chance of receiving favorable terms.

“Closing a credit card may affect formulas used to figure your credit score,” says McLimans. “It's best to check with credit bureaus and ask their advice anytime you wish to open or close a credit card.”