Updated on 02.03.16

What Happens When You Cancel a Credit Card?

Cutting it up is one thing, but permanently closing a credit card account can hurt your credit score. Here's why.

There are myriad reasons you might consider closing an old credit card. Perhaps you’ve spent too much on credit in the past and want to prevent going down that rabbit hole again. Or maybe you’re ready to upgrade to a new rewards credit card and plan to cut up your old one. Other people close old accounts simply because they haven’t used them in years and it’s one less thing to keep track of.

Whatever your reason, know this: Closing an old credit card account can have consequences.

What Actually Happens When You Close an Old Account?

Shutting down an old credit card account involves much more than a pair of scissors. Once you decide to close a credit card, you’ll need to give your card issuer a call using the contact number on the back of your card. Here’s what happens next:

Your card issuer will ask you some questions regarding your account.

Occasionally, your credit card company will cancel your card with no questions asked, but other times, they’ll try to convince you to change your mind. Sometimes they’ll even transfer you to a customer retention department whose sole purpose is to entice you to keep your card. They may even offer you special perks – including credit card rewards or balance transfer offers – to convince you to stay.

If you truly want to cancel your card, it’s okay to politely decline these offers and proceed with the closure. Just remember, closing an account means it will be closed for good.

The closed account is reported to the credit bureaus.

Within a month after you close your account, the action will be reported to the credit reporting agencies – Experian, Equifax, and TransUnion. However, closing an account doesn’t mean its positive impact is over. According to Experian, accounts with no negative marks can remain on your credit history for up to 10 years.

As long as your credit card account doesn’t have any negative marks, its impact should be felt for many years to come – and that’s true whether you close it or not.

Your credit score might go down, albeit temporarily.

Closing an account could have a negative impact on your FICO score, the score most commonly used by lenders. That’s because of the way FICO scores are determined, and the complex maze of factors they use to determine whether your score goes up or down.

The FICO scoring method relies on ratings in five general categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%).

The factors that could be influenced when you close an account are 1) the amount of money you owe in relation to your credit limits – also known as utilization — and 2) the length of your credit history.

Utilization: If you are debt-free across all of your accounts, your utilization will be zero across the board. When that’s the case, closing an old account won’t change your utilization at all. But if you owe money on other credit cards or loans, closing an old account with a high credit limit could instantly push up your utilization. Because you’ll technically be using a bigger slice of your available credit, Experian reports this could hurt your score.

As an example, say you have two credit cards with a $5,000 limit on each, and you’re carrying $2,000 in balances — that means your using $2,000 out of $10,000 in available credit, so your utilization rate is 20%. If you close one of the cards, however, you’re suddenly using $2,000 out of $5,000 in total credit — and now your utilization rate has jumped to an unsavory 40%.

Length of credit history: Closing an old credit card can definitely decrease the average age of your credit history, too – especially if the card you’re closing was established a long time ago, or maybe even your first-ever credit card. According to Experian, this is yet another reason your score could drop temporarily if you close an old account.

What to Do Before You Close a Credit Card

To close or not to close – that is the question. If you don’t have a compelling reason to close your account, it might be wise to keep it open and simply cut up the card or stash it away in a drawer instead.

Keeping an old account open allows you to lengthen the average age of your credit accounts over time, plus keep your utilization as low as possible. And if you don’t close an old account, you don’t have to worry about the closure negatively impacting your credit.

If you insist on closing your account for any reason, here’s what you should do first:

Step 1: Cancel any automatic charges linked to the card.

Before you close your credit card, you’ll want to cancel any automatic payments liked to the account, including gym memberships, subscriptions, or utilities you have automatically billed to your card. You’ll want to move these expenses to another credit card or form of payment. Otherwise, you could incur late fees or penalties — or even a ding to your credit report — when these services attempt to bill the canceled credit card.

Step 2: Pay your credit card balance in full.

Before you close your credit card, you’ll need to pay your balance in full. Make sure you allow any pending purchases to post before mailing in your final check or performing your final payment online. Once your final payment posts and your account balance drops to zero, you’ll be able to move forward.

Step 3: Redeem all of your rewards.

Most of the time, closing an account means forfeiting any credit card rewards you have earned along the way. Before you call your card issuer to close your account, you’ll want to redeem your rewards in whatever fashion make the most sense. Most of the time, the easiest redemptions come in the form of cash back or gift cards.

Step 4: Call your card issuer to cancel.

Calling the number on the back of your card is the easiest way to get in touch with the department that will actually close your account. Just remember to be steadfast in your resolve if you truly want to close your account. Most of the time, the customer service agent will close your account without too much hassle or stress.

Step 5: Check your credit report to make sure the cancellation went through.

Most of the time, your card’s closure will go off without a hitch. To follow up and make sure your account is indeed closed, you can check your free credit report on AnnualCreditReport.com or log into a free account with Credit Karma. Either way, you’ll want to double-check that your account is closed for sure.

Follow up, if needed.

If your credit report doesn’t show a closure within two or three months, it’s wise to follow up with your card issuer. Call the number on the back of your card again to ensure your account was closed as requested. If you’re not satisfied, you may also want to consider sending a certified letter stating your request for account closure using the address listed on the back of your card.


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The Bottom Line

Pulling the plug on an old credit card account is a decision that shouldn’t be taken lightly. However, it’s not the end of the world, either. If your credit is good or excellent, and your debt levels are nonexistent or minimal, closing your account may not impact you at all.

At the same time, closing an old account isn’t your only option. If you’re worried about how a closure might impact your score, you can always keep your account open and stash your card away for safe keeping, or even cut it into smithereens to ensure you don’t use it (and that no one else does, either).

Either way, it’s best to make sure any decision you make is an informed one.

Have you ever closed a credit card? Did the process go smoothly?

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