Picture this: You’re scrolling through your monthly credit card statement, and you spot a charge you don’t recognize. After some investigation, you realize that it’s a recurring charge for a service you no longer use, but you’re still being billed for it.
Frustrated and annoyed, you may wonder whether it’s time to cancel that credit card. Whether it’s a similar circumstance or just wanting to simplify your finances, canceling a credit card can seem like a hassle. Read on to learn when you should cancel a credit card and how to do it the right way. Keep reading to see how you can get personalized offers from our trusted partners through MoneyLion!
Should you cancel a credit card?
Canceling your credit card may not be the best idea if you want to keep your credit score in tip-top shape. It can impact your credit utilization ratio, which is the amount of credit you’re using compared to your overall available credit. If your ratio goes up after canceling a card, your credit score could potentially take a hit.
But there are times when you’ll want to say sayonara to your credit card. If the card has a yearly fee that’s no longer worth it or you’re juggling too many credit card payments, it may be time to cancel.
If your card has been compromised or you’ve spotted some fraudulent activity, don’t panic. In most cases, you can simply contact your credit card issuer and it will send you a new card with a new number. This way, you can continue using your credit without having to close the credit card.
Does canceling a credit card hurt your credit?
Canceling your credit card typically closes the account and tends to impact your credit score. This is because canceling a credit card reduces the average age of your accounts, which is one of the factors used by credit bureaus to calculate your score.
Closing an account can cause your overall available credit to decrease, resulting in a higher utilization ratio, which also affects your score. A higher utilization ratio can make you appear riskier to lenders. If you already have a low utilization ratio and don’t carry a balance on other cards, this might not have a significant impact on your score. If the utilization drops, you could always open another credit card account to raise the available credit. But keep in mind, a new account can bring the age of your credit down even further, which can negatively impact your credit score.
Reasons to cancel a credit card
There are some situations when canceling a credit card is the best option. Always weigh the pros and cons for your specific situation before making a decision.
Separation or divorce
If you’ve recently gone through a separation or divorce, you may want to cancel credit cards you held jointly to prevent any further financial engagement with your ex. The last thing you’ll need is to be financially linked to someone who you’re no longer in a relationship with. It may make it easier for you to manage your finances independently.
High-interest rates or annual fees
Another reason to cancel a credit card might be if the interest rates or annual fees associated with the card are particularly high. The high-interest rates can make it difficult to pay off your balance in a timely manner, while annual fees can eat into your budget and add up over time. In these cases, it may be worth exploring other credit card options with lower interest rates or no annual fees.
Spending temptation
Some people choose to cancel credit cards because they find that they have a hard time resisting the temptation to overspend. Credit cards can be convenient and offer rewards, but they can also make it easy to spend money that you don’t have. If this is the case, you might consider switching to a debit card instead. Debit cards offer similar convenience, but they can help you stay within your budget because you can only spend the money you have in your account.
7 steps to cancel a credit card
Canceling a credit card is pretty simple, but there are also some things you’ll want to make sure you take care of to ensure it’s done correctly.
1. Pay any remaining credit card balance
If you have a balance on your credit card, make sure to pay it off in full before canceling the card. This will help you avoid any interest charges or fees.
2. Redeem any outstanding credit card rewards
If you’ve accumulated rewards or cashback on your credit card, you’ll want to redeem those before you cancel. Most credit card companies offer a variety of options for redeeming rewards, including statement credits, gift cards, merchandise and travel rewards.
3. Cancel recurring payments
If you have any recurring payments on your credit card, you’ll need to cancel them before canceling the card. Examples of recurring payments may include subscriptions to streaming services, gym memberships or utility bills. Check your credit card statements to be sure you don’t overlook any.
4. Contact your credit card issuer
You can typically find the customer service phone number or email address on the back of the card or on the company’s website. When you contact the company, be sure to provide your account information and explain that you would like to cancel the card. They’ll likely ask for the reason why you want to cancel.
5. Submit a cancellation request
Follow the steps the card issuer provides and ask for confirmation of the cancellation. You may be able to submit a cancellation request online or over the phone. Ask the customer service representative for confirmation that the card has been canceled, including the date of cancellation.
6. Review your credit report
After canceling your credit card, keep an eye on your credit report to make sure there are no errors or fraudulent charges. You can request a free credit report from each of the three major credit bureaus once a year.
7. Destroy your old credit card
Once you’ve received confirmation that the card has been canceled, make sure to cut up the card or shred it to prevent anyone else from using it.
Alternatives to canceling an unused credit card
If you are worried about the impact on your credit score because of the cancellation of your credit card, there are several solutions that can help. First, you have the option of securely storing the card, so you don’t fall prey to temptation, while also keeping it as an active account.
You could also contact your credit card provider and consider downgrading it to a more affordable plan or one with better terms and conditions. This could potentially save you from hefty fees and interest charges as well as offer the chance to pay off your balance quicker.
If none of these works for you, keep the card for emergencies only and make sure that your balance is paid off in full each month. By doing so, not only will you avoid trouble but also maintain a good credit history.
MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.
If You Decide To Cancel, Offset The Impact
In some situations, canceling a credit card makes sense. In other cases, there may be a better option that helps you maintain your credit score. If you cancel your card, prepare to offset the impact that cancellation will have on your credit score by paying down other cards or applying for a new one.
FAQ
Can I still use my credit card after I cancel it?
No, once a credit card is canceled, it cannot be used for any transactions.
Are there any fees for canceling a credit card?
It depends on the credit card issuer. Some issuers may charge a cancellation fee, while others do not. It’s important to check with your issuer before canceling your card.
Can I cancel my credit card without closing my account?
Typically, canceling the credit card closes the account, but you’ll want to ask your credit card issuer whether this is an option.
