There are myriad reasons why you might consider closing an old credit card. Maybe you’ve overspent on credit in the past and want to avoid going down that rabbit hole again. Or maybe you’re ready to switch to a new rewards credit card and are thinking about scrapping the old one. Maybe you want to avoid annual fees on cards you no longer use.
Whatever your reason, remember that closing an old credit card account can have consequences.
What actually happens when you close an old account?
Closing an old credit card account involves more than a pair of scissors. Once you have decided to close a credit card, you will need to call your card issuer using the contact number on the back of your card.
Here’s what happens next:
Your card issuer will ask you some questions about your account
Sometimes your credit card company will cancel your card no questions asked, but other times they’ll try to convince you to change your mind. Sometimes they even transfer you to a customer loyalty service whose sole purpose is to trick you into keeping your card. They may even offer special perks to convince you to stay, including credit card rewards or balance transfer offers.
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If you really want to cancel your card, you can decline these offers and politely proceed with closing. Remember that closing an account means that it will be permanently closed.
The closed account is reported to the credit bureaus
Within one month of closing your account, the action will be reported to credit reporting agencies: Experian, Equifax and TransUnion. However, closing an account does not mean that its positive impact is over. According to Experian, accounts without a negative mark can remain in your credit history for up to 10 years.
As long as your credit card account does not have negative marks, its impact should be felt for many years to come. It’s true whether you close it or not.
Your credit score could temporarily drop
Closing an account could negatively impact your FICO score – the score most commonly used by lenders.
The FICO scoring method is based 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%). ).
Factors that could be influenced when you close an account are 1) the amount of money you owe against your credit limits – also known as use — and 2) the the length of your credit history.
Use: If you have no debt on all your accounts, your usage will be zero at all levels. When this is the case, closing an old account will not change your use. But if you owe money on other credit cards or loans, closing an old account with a high credit limit could instantly increase your usage.
For example, let’s say you have two credit cards with a limit of $5,000 each and you have a balance of $2,000 — that means you’re using $2,000 out of $10,000 of available credit, so your rate utilization is 20%. If you close one of the cards, however, you suddenly use $2,000 of $5,000 in total credit, and now your usage rate has jumped to 40%.
Length of credit history: Closing an old credit card can certainly reduce the average age of your credit history, especially if the card you are closing was established a long time ago. According to Experian, this is yet another reason why your score might drop temporarily if you close an old account.
How to cancel 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 a good idea to keep it open and just cut up the card or put it in a drawer instead.
Keeping an old account open allows you to lengthen the average age of your credit accounts over time, in addition to keeping your usage as low as possible. And if you don’t close an old account, you don’t have to worry about the negative impact of the closure on your credit.
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If you still insist on closing your account for some reason, here’s what you should do first:
Step 1: Cancel all direct debits linked to the card
Before you close your credit card, you’ll want to cancel any automatic payments related to the account, including any gym memberships, subscriptions, or utilities you’ve automatically charged to your card. You’ll want to move those expenses to another credit card or payment method. Otherwise, you could incur late fees or penalties — or even damage to your credit report — when these services attempt to charge the canceled credit card.
Step 2: Pay your credit card balance in full
Before closing your credit card, you must pay your balance in full. Be sure to clear all pending purchases before sending your final check or making your final payment online. Once your final payment is posted and your account balance drops to zero, you can continue.
Step 3: Redeem all your rewards
Closing an account means losing any credit card rewards you’ve earned along the way. Before you call your card issuer to close your account, you’ll want to redeem your rewards in the most logical way. Most of the time, the easiest redemptions come in the form of cashback 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 service which will effectively close your account. Remember to be firm in your resolve if you really 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
To track and make sure your account is closed, you can view your free credit report at AnnualCreditReport.com or log into a free account with Credit Karma. Either way, you’ll want to make sure your account is closed.
Step 6: Follow up, if needed
If your credit report doesn’t show 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 has been closed as requested. If you are not satisfied, you may also consider sending a certified letter stating your request to close your account using the address on the back of your card.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]