Your credit score is partly based on your credit utilization, which is the percentage of available credit you are currently using. If you close an account, then your available credit drops and your utilization rate rises. However, it’s possible to cancel a credit card while doing minimal harm to your credit score. Pay down the balances on your cards so that your utilization does not increase. Alternately, you can open a new card and transfer the balance. However, you should also consider other options.
EditSteps
EditPaying Down Balances Before Closing
- Calculate your current utilization rate. Take out all credit card statements and identify the credit limits. Add them together to get your total available credit.
- Then go through and add up all balances. Divide the balance amount by the available credit.
- For example, if your credit limit is $15,000 and your total balances are $3,000, then your utilization rate is 20% ($3,000 divided by $15,000 is 0.2).
- Pay down your balance in full. You can’t close a card until you pay off the balance.[1] Accordingly, you should commit to paying off the balance as quickly as possible.
- Create a budget if necessary, and stick to it.
- If you don’t have the money, you can call your card issuer and ask them to freeze the card. This will prevent you from making new charges.
- Reduce the balances on your other cards. In order to protect your credit score, you may need to pay down the balances on your other cards so that your utilization doesn’t rise. To see why, consider the following example:
- Amy has three credit cards: A, B, and C. She wants to close A, which has a high interest rate. All three cards have a $2,000 credit limit, giving her $6,000 in available credit. Card A has a $500 balance, and Card B has a $2,000 balance. Currently, her utilization rate is about 42% ($2,500 divided by $6,000).
- However, if she closes Card A, her available credit will be $4,000 and her total balance will be $2,000. This gives her a utilization rate of 50%. Amy’s credit score will decline as a result.
- Amy can keep her utilization rate from rising by paying down the $2,000 balance on Card B.
- Ideally, Amy should pay off all balances before closing any card.
- Redeem all rewards. If you have a rewards card, you’ll probably lose the rewards when you close the card. Accordingly, you should redeem all of your rewards if possible.[2]
- Some cards make it difficult to redeem rewards. For example, you might only be able to redeem if you reach a certain threshold. Alternately, some cards allow you to redeem points only once a year. In these situations, you might need to delay closing your account if you want the rewards.
- Avoid cancelling all cards. Closing one card might hurt your credit score a tiny percentage, but closing all credit cards will hammer your credit score. This is a drastic way to manage your debt load, and you should consider alternatives, such as credit counseling.[3]
- Call to cancel. Find the number on the back of your credit card. When you call, ask the rep to confirm that the balance is zero. Tell the person that you want to close your account and ask that they report the account as “closed at the consumer’s request.”[4]
- The representative might ask why you are closing your account. You can tell them your reasons, or just say, “Oh, I don’t need the card.” It’s your right to close an account, so don’t let them dissuade you.
- Write down the name of who you speak with, including other details (day, time, substance of the conversation, etc.)
- Send a letter. It’s a good idea to follow up with a letter in case the customer service representative makes a mistake. In your letter, request that the account be closed “at the consumer’s request.” Include your name, account number, and contact information.[5]
- Also explicitly ask that they send you a confirmation letter. You’ll want something in writing.
- Mail the letter certified mail, return receipt requested, and keep a copy of the letter for your records.
- Confirm the account was cancelled. Wait about a month, and then pull a copy of your free credit report. Check to see the account has been closed and that it states your account was closed at your request.[6]
- If the account remains open, call the card issuer again. Send a follow-up letter and include a copy of your original letter.
- If there isn’t a notation that the account was closed at your request, dispute the error with one of the credit bureaus.
- Postpone closing your card, if necessary. You may want to keep your credit score as high as possible because you are applying for a mortgage or a car loan. In this situation, you should wait before closing your account. Get your mortgage first, and then focus on closing credit cards.
EditUsing a Balance Transfer
- Find a balance transfer card. Using a balance transfer is a great idea if you can’t pay down the balance on the card you want to close. Shop around for a new credit card. Many card issuers offer balance transfer cards with an introductory 0% APR for 12-18 months.
- You’ll need a good credit score to qualify for the best deals. Generally, your score should be 720 or higher, though people with lower scores might still qualify for a balance transfer card.[7]
- Compare offers. Look at what the APR will be once the introductory period expires. Also check if the card requires an annual fee.[8]
- Check the credit limit on the new card. You’ll preserve your utilization rate if the new credit card has the same credit limit as your old card. If the limit is lower, then your utilization rate will increase, which will hurt your credit score.
- For example, you might want to transfer a $1,000 balance from Card A to Card B. Card A has a $5,000 credit limit, but Card B has only a $3,000 credit limit. In this situation, your utilization will increase.
- Also realize that you’ll pay a small fee when you transfer your balance. The fee averages around 4% of the amount transferred, so your total credit usage will also increase slightly.
- Apply for the new card. You can apply online. You’ll be asked to provide personal information, including your Social Security Number and information about your employment.
- Transfer the balance when you open the card. You’ll be asked the balance you want to transfer and details about the card.
- Opening a new card will probably decrease your credit score slightly in the short term.[9] If you absolutely cannot let your score fall, even a little, then you should delay cancelling your credit card until you can pay it off in full.
- Close your card. Once the balance has been transferred, you can close your card. Call and confirm that the card now has a zero balance. Then state that you want to close the card and ask them to report the closure as “at the consumer’s request.”[10]
- Follow up with a letter, certified mail, repeating your request. Include all relevant information—name, address, phone number, and account number.
- Check your credit report to see that the card was closed and properly noted as closed at your request. If not, then dispute the notation.
EditChoosing Other Options
- Ask for better terms. You might choose to cancel your card because the terms are no longer friendly.[11] For example, the interest rate may be too high or the issuer might charge an annual fee. If so, you can call and ask the card issuer to change the terms.
- Point to your history of being a good customer. Mention that you have never missed a payment.
- It costs lenders more to find new customers than to keep old ones, so don’t be shy about asking for a break on your interest rate or fees.[12] All they can say is “no.”
- Take the hit to your credit score. Sometimes, it’s better to just bite the bullet and cancel the card. For example, you might want to cancel a joint credit card because you are getting divorced. In this situation, you can suffer a temporarily drop in your credit score.
- Credit utilization makes up 30% of your FICO score.[13] Accordingly, a small bump up in utilization will hurt your score, but you can take actions that will send your score higher. In particular, you should aggressively pay down your debt, which will lower your utilization.
- Freeze your credit cards in ice. Instead of cancelling, you can simply put your credit cards in a bowl of water and store it in the freezer. Focus on paying down your balances, which will also increase your credit score.
- To get spending under control, you might want to meet with a credit counselor. They can help you develop a budget and identify areas where you overspend.
EditSources and Citations
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