How to cancel a credit card without hurting your credit score

Maybe you hold a store credit card for a store where you no longer shop. Or the rewards on a travel credit card no longer match your lifestyle. From annual fees to high interest rates, there are many reasons you may want to cancel a credit card.

Even though canceling a credit card can temporarily reduce your credit score by reducing your available credit and the average length of your credit history, it sometimes makes sense to cancel a credit card that no longer serves you.

Think of it as making room for something better: heftier rewards, no annual fees, even a 0 percent introductory APR. There’s no need to let a card sit dormant in your wallet when you could be carrying something better.  But how do you cancel a card while minimizing the damage to your credit score?

1. Consider keeping the account open

Your credit utilization ratio is the measure of how much of your available credit you’re using. It’s the second most important factor that goes into your credit score, and lower is better.

When you close a credit card account, you reduce your total available credit. This may increase your credit utilization ratio, which can decrease your credit score. Here’s an example:

• You have five credit cards each with a $1,000 limit, making your total available credit $5,000.
• Your regular monthly credit card expenses total $1,000.
• Your credit utilization ratio is 20 percent (1000 / 5,000 = 0.2), which is pretty good.

But what if you cancel two of those credit cards? The equation then works out to 1,000 divided by 3,000, pushing your credit utilization ratio up to 33 percent.

If you’re paying an annual fee or high interest rate, it’s probably still worth it to cancel. But if you’re considering canceling only because it’s an old card you don’t use anymore, consider keeping the account open.

2. Pay or transfer any outstanding balance

If you’re carrying a balance, you need to get it down to zero before you can close your account. There are two ways you can go about this.

If you can’t pay off the balance straight away, transfer your balance to a new card. Some of today’s balance transfer cards offer an intro 0 percent APR for 18 months or longer on balance transfers. Keep in mind it can take anywhere from a week to a month for a balance transfer to go through. Review the statements of your old card and your new card to ensure the transaction has been processed.

3. Ask for a credit limit increase

If you’re set on canceling a credit card but worried about the impact on your credit utilization, try increasing your credit limit on the cards you wish to keep. Say you’re losing $1,000 of available credit by canceling a card. Try asking the issuer of one of the cards you’re keeping for a $1,000 credit limit increase.

Note that this kind of request sometimes requires a hard credit inquiry, which may temporarily ding your score. But a small, temporary decrease is better than consistently coming close to using 100 percent of your available credit.

4. Call or go online to cancel

Once the card balance is zero, you may be able to use the credit card company’s online messaging center to send an email and close the account. But it’s always best to call the number on the back of the card, instead. The credit card issuer may extend an attractive offer that makes it worth your while to stay, like waiving the annual fee for a year, lowering your interest rate or issuing bonus rewards. Will the card remain dead weight in your wallet even with the added incentives? Then go ahead and cancel it.

Whether you’ve canceled the card by phone or by mail, it’s best to follow up with a certified letter announcing that you have requested to close the account.

5. Check your credit report

Don’t just take the credit card company’s word for it. Make sure your creditor has reported your decision to the three major credit bureaus by checking your credit reports at www.annualcreditreport.com. Remember, the account should read “closed at customer request.”

If there’s a mistake, don’t call the credit bureaus. Call the customer service number on the back of the card to request they correct the error. You may need to follow up with another certified letter.

It’s normal for your credit score to drop a little when you close a credit card account. That’s because your average age of accounts and credit utilization—two factors that affect your credit score— may be negatively impacted. But the effect shouldn’t be too drastic. Keep an eye out for any sharp, sudden drops, which could indicate an error in closing the account and perhaps even fraudulent use of the card.

6. Destroy the credit card

When you’re sure the account is closed, it’s time to get rid of that plastic once and for all. Ideally, run the card through a paper shredder that’s also designed for plastic and then throw away the pieces. If you don’t have a shredder, cut up the card with scissors and throw the pieces away in a few separate garbage bags, separating the numbers and name completely.