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 lower 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 measures how much of your available credit you’re using. It’s the second 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 canceling. But if you’re considering canceling only because it’s an old card you don’t use anymore, consider keeping the account open.

Cards that don’t cost you anything to stay open can still serve a valuable purpose by keeping your average age of accounts higher. Consider putting the card in a drawer or somewhere obscure but safe, perhaps making a small purchase every 6-8 months to keep the account active.

Learn more: Should you cancel an unused credit card?

2. Settle outstanding balances

If you’re carrying a balance, many issuers require you to pay it off completely before you can close your account. Even if you can close the account with a balance, you will still be responsible for payment. 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 the best 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 and new cards to ensure the transaction has been processed.

3. Cancel recurring payments

Since your card will soon become inactive, you’ll need to cancel any recurring automatic payments on the card. Forgetting this crucial step could cause issues with declined payments to the merchant and cancellation of services.

You may not even realize what is automatically charged to your card, especially if the charge is processed annually. To help identify these recurring charges, you can use one of the many mobile apps specializing in subscription management.

4. Redeem your rewards

Before closing your account, check to see if your rewards will expire. If so, you’ll want to redeem your rewards before canceling your card, otherwise you’ll be leaving potentially significant value on the table.

Not all rewards expire, and some are easier to use than others. Cash back is often the easiest to redeem, usually for a statement credit. Points and miles earned on co-branded travel cards, such as airline miles or hotel points, typically are safe once they have arrived in that program’s balance.

Flexible point currencies like American Express Membership Rewards can be a bit more complicated and require looking into. If you have other rewards-earning cards from the same issuer, make sure your other cards will keep the points active, or transfer them to the card you are keeping open if needed. If not, determine the most valuable way to use your balance before closing the account.

5. Contact the issuer 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, such as waiving the annual fee for a year, lowering your interest rate or issuing bonus rewards. You may also have options to downgrade the card to one with a lower or no annual fee. Will the card remain dead weight or be a negative cost in your wallet even with the added incentives? If so, 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.

6. 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 issuer’s 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 or long-lasting. 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.

7. 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 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. Metal credit cards require different methods of disposal.

The bottom line

Canceling a credit card isn’t as simple as it sounds. You’ll need to complete a task checklist to ensure every base is covered. Once you’ve determined the card isn’t worth keeping, settle your existing payments, balances and rewards before contacting the issuer. Confirm the account is closed correctly on your credit report and safely dispose of the card to prevent future credit score and fraud issues.