How to cancel a credit card

Canceling a credit card can be a good idea in certain situations, though not always. This article will cover steps to take to cancel a card and factors to consider before you cancel. 

The six steps to canceling a credit card include:

1. Pay off balance
2. Use rewards
3. Call issuer
4. Send letter
5. Check your credit report
6. Destroy card

Six steps to cancel a credit card

1. Pay off balance

You'll want to pay off your entire balance before you cancel your card to avoid accidentally incurring additional fees. Some issuers will allow you to just close the account to new charges while you continue to pay off the balance. However, if you forget that you have the account and stop paying the balance, your credit score could take a big hit.

Once your balance is paid, check to see whether your card has any automatic payments or subscriptions on it and move these to a different card.

2. Use rewards

Be sure to redeem any rewards that haven't been used on your account. If you can't redeem the rewards for any reason, you may be able to transfer them to your partner or to another card.

3. Call issuer

Call your credit card issuer to cancel your card. Be prepared that you may be given a counter-offer to keep the card open. If you're sure you want to close, say no and continue with the process. You'll want to confirm that you don't have an existing balance on the card.

4. Send letter

Follow up your call with a cancellation request letter with information about your first request, as well as your name, address, number, and credit card information.

5. Check your credit report

You'll want to check your credit report anywhere from 30 to 45 days after you cancel your card to be sure that it was closed and that you don't have an existing balance.

6. Destroy card

Make sure your card is completely destroyed so no one will have access to it. Use scissors or a shredder if the card is made of plastic, or ask your issuer if they have a card recycling service for cards made of metal.

Is canceling my credit card a good idea?

Consider the following factors before you cancel your credit card:

How old is your account? While canceling an account doesn't affect the average age of your accounts, the canceled account will no longer improve your score. It's important to note, however, that accounts in good standing remain on your record for up to 10 years, so the overall age of your canceled account will still be included in the average.

Does your card have an annual fee? If your card has an annual fee, it may be worth canceling. If it doesn't, there might be little upside to getting rid of it. Even if your card has an annual fee, you might be able to ask your issuer to downgrade your account (just know that this will probably result in you losing access to some perks.)

Will this affect your credit utilization ratio? Closing a credit card can affect your credit utilization ratio, which measures the amount of revolving credit being used by the amount of credit available. Canceling a card will mean less credit available and may show that you're utilizing more of your credit ratio, which can negatively affect your credit score. You ideally want your credit utilization ratio to be 30 percent or lower. If canceling your card will put you above 30 percent, it might be smart to pay down other card balances first.

How to calculate your credit utilization ratio

1. Add up the statement balances on your credit cards
2. Add up the limits on your credit cards
3. Divide your total balances by your total credit limits

When it's a good idea to cancel a card

If your spending is out of control and you've found yourself falling into debt, closing your credit cards might make sense if the temptation to use them is too great.