How to Cancel a Credit Card While Maintaining Your Credit Score
How to Cancel a Credit Card While Maintaining Your Credit Score: Are you planning to cancel your credit card? Maybe you don't want to pay the annual fee, or maybe you don't use the rewards programme enough to reap the benefits.
While there are many valid reasons to cancel your credit card, you should be aware of the consequences.
You should avoid adding to the list of factors that can harm your credit score. If you have a low credit score (or simply a short credit history), you can immediately improve it. Credit repair specialists are waiting to help you.
However, before cancelling your card, you should educate yourself on the consequences of closing an account and the procedures you must follow.
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Will cancelling a credit card account have an impact on your credit score?
Closing your credit card account can have two negative consequences for your credit score:
Reduce the credit usage ratio.
The credit utilisation ratio is a single figure that accounts for 30% of your credit score. The credit utilisation ratio compares how much you use to your available credit.
If your total credit card balance is $3,000 and you have $10,000 in available credit, your credit utilisation ratio is 30% (3,000/10,000 = 30).
Credit experts recommend keeping your credit utilisation ratio at 30% or less (the lower, the better).
Closing a credit card with a $4,000 credit line reduces your total available credit to $6,000 ($10,000 minus $4,000 = $6,000).
Your credit utilisation ratio skyrockets to 50% with the same $3,000 balance, which can harm your credit score.
Reduce the average age of your accounts.
The average account age has a significant impact on your credit score. The more time you spend managing your credit, the higher your credit score will be.
Because your score considers the average age of all your accounts, closing older accounts may significantly impact your score more than opening a new account.
If your credit utilisation ratio is low or the average age of your accounts is short, your credit score may suffer.
If this is the case for you, it is worthwhile to seek the advice of a professional who can help you improve your score.
When you're ready to cancel your credit card
Even though closing a credit card can hurt your credit score, there are times when it makes sense.
Keeping a card with a high annual fee may not be worth it if you don't use it frequently enough to earn rewards.
The card has a high-interest rate: It is understandable to cancel a high-interest rate credit card. However, keep in mind that you can avoid paying interest entirely by paying off your monthly balance or not using the card.
Closing a joint credit card with your spouse or partner may be a logical decision if you're going through a divorce or separation. This way, you can keep your finances separate and avoid your ex surprising you with the card.
Your credit card is luring you into overspending: If you have a habit of overspending on your credit card, closing your account may help you gain control.
Your card does not match your spending habits: If you switch to a card with benefits that are more aligned with your spending habits, you may receive a larger benefit and maximise your rewards earnings.
Other alternatives to cancelling your credit card
Consider the alternatives listed below to avoid cancelling a credit card and harming your credit score.
Negotiate a lower interest rate or a different credit card.
Sometimes an open discussion with your card issuer is required. Tell them you'd like to talk about your credit card cancellation options.
Looking for a credit card with no annual fee and a competitive interest rate? Inquire about transferring your account to another card that better meets your needs with your card issuer. This allows you to keep your account open.
Transfer your balance to a card with a lower interest rate.
Transferring your balance from a high-interest credit card to a lower-interest credit card can help you save money on interest charges. While keeping both accounts open, you can transfer the balance to a different or new card.
Keep in mind that keeping unused credit cards rather than cancelling them lowers your credit utilisation and extends your repayment term.
How to Cancel Credit Cards Without Hurting Your Credit
Keep in mind that cancelling your credit card may hurt your credit score. What does this have to do with anything? Because having a good credit score can influence your ability to obtain a mortgage, car loan, student loan, or another type of credit.
On the other hand, bad credit makes it challenging to obtain such products, and the cost of borrowing is usually higher than for people with good credit.
Follow the steps below if you still want to cancel your card.
Examine the balance of your remaining rewards. When you close your account on some cards, any cashback or rewards you've earned are forfeited. Use any remaining Rewards points before they expire.
Make contact with your credit card company.
Call your credit card company to find out how much cash you can withdraw and to close your credit card account. Check to make sure there is no money in your account. Your card will be cancelled immediately, and you will be notified in writing.
Send a follow-up letter. You should send a confirmation request via certified mail, even if it is not required. Keep this letter for your records as written confirmation from your card issuer that your account has been closed with a $0 balance.
Check your credit report.
Check your credit report around 60 days after closing the account to see if it says “closed at your request.”
Remove your card. You can avoid fraud and identity theft by cutting up your card and throwing it away once your account has been closed.
Is it time to get rid of your credit card?
Only you can weigh the benefits and drawbacks of cancelling your credit card and make the decision for yourself.
If you're concerned about the short-term impact on your credit, think about negotiating better terms or switching to another credit card from your issuer. You should cancel if you are tempted to overspend with your credit card.
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