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Credit Cards

When to Cancel a Credit Card

Updated Jun 16, 2023   |   6-min read

If you’re like most Americans over the age of 18, you probably have at least one credit card. You may even receive offers for cards that have better interest rates, more rewards, or benefit you in a way that your current card doesn’t. Is it ok to cancel a credit card and replace it with one of these new offers? In most cases, experts say no—but there are certain times and situations when canceling a credit card is ok.

Downsides to Canceling a Credit Card

Increase in Credit Utilization

Canceling a credit card is usually a bad idea. A large portion of what makes up your credit score is your available credit and the percentage of that amount you’re using. Anything over a 30 percent debt utilization ratio can have a negative impact on your credit score. If you have two cards with a credit limit of $10,000 each and a balance of $5,000 on one, you’re already at 25 percent of your available credit used. If you close one of the cards, suddenly you’re down to $10,000 in available credit—and 50 percent of it is already used.

Credit History

The length of time you’ve had an account also plays a part in determining your credit score. Closing an account you’ve had for a long time can affect your credit score in a negative way because you’ll lose the good payment history associated with that card. It can keep affecting your score until you’ve had some of your other accounts as long as you had the closed account.

Financial Emergencies

The last—and possibly most obvious—is if you close the card, that’s thousands of dollars of a financial lifeline you no longer have. For many people who keep cards specifically for emergencies, the idea of losing that safety net is something they’re not willing to do.

When Is It Ok to Cancel a Credit Card?

There are situations when the drawbacks to keeping a card open outweigh those of closing it, and in those cases, you might want to consider going ahead and closing the account. If you’re in one of the following positions, it makes sense to cancel the card.

  • You don’t expect to apply for a loan for a long time – If you aren’t planning to need any more credit for a while, then taking the negative hit might not be a big deal to you. Just make sure you give your credit report some time to rebound before applying for any more credit.
  • ​You don’t like the terms of the credit card – In many cases, you can negotiate a better interest rate or maybe even better terms. Some card issuers, however, don’t negotiate; if your card issuer isn’t willing to change any of the terms of your card, you may want to consider taking your business elsewhere.
  • ​You can’t stop overspending – If you find you have a hard time staying within your budget, or you frequently see over-limit fees on your monthly statement, you should probably close the account—if for no other reason than to save you from yourself.
  • You haven’t used the card – Maybe you applied for a card a while ago but haven’t used it yet. If you don’t plan to use it in the future, there’s no point in keeping the account. Be aware that the available credit and utilization ratio will still matter in this situation, and you could still see a decrease in your credit score.
  • It’s a co-branded card for a company that no longer exists – You may have some old credit cardstucked away that are for stores that went out of business years ago. You might have seen the credit card account still open on your report, surprised to find out that just because the store closed doesn’t mean your credit card did. In those cases, go ahead and close the account.
  • It has features you don’t use – You might have gotten a travel credit card only to get a promotion that means you no longer have time to travel. Perhaps you got a card as a student with benefits that no longer apply to you now that you’re out of college. Whatever the reason, if you’re not using the major benefits of the card, there’s no point in keeping it open.

How to Cancel a Credit Card

Canceling your credit card account requires a few steps. Contrary to what you may have read or heard, it’s not as simple as cutting up the card and discarding the pieces. In fact, no matter what you do to the card itself, the account remains open until you close it.

First, understand what your balance is and make sure you don’t have any monthly payments automatically billing to the card, such as media streaming services, subscriptions, and other charges. Also, you’ll need to pay the balance off first; the company won’t close your account if you still owe money on the card.

Once the card has a zero balance, contact the credit card company and let them know you want to close the account. If you are set on closing it, be clear about that; often card companies will send you to a retention specialist who is authorized to offer interest rate discounts or other perks in an effort to keep you as a customer.

Some experts recommend you also send a letter so you and the card company have a record in writing showing you requested to close the account. Whether you send a letter or not, make sure you monitor your credit report for the next 90 days very closely to ensure the card account was actually closed. Be prepared to follow up again with a phone call and/or letter if it was not handled.

Here are some additional resources on canceling a credit card:

Final Thoughts

In most cases, you won’t end up closing a credit card account because of the drawbacks to your credit score. If you’ve decided it’s still the best option for you, however, do it smartly. Keep records of your communications with the card company and make sure it gets taken care of promptly to minimize issues with your credit report later.

>> Read More: How do credit cards work?