You and your credit card issuer aren’t in a permanent relationship. In fact, you could call it quits at any time, for any reason.
Credit cards are always competing with one another to entice cardholders to apply for them. But that doesn't mean you should pull the trigger and cancel your cards at a whim. Here's what to consider first.
Four things to do before you cancel your card
If you've been thinking about slimming down the cards in your wallet, here are a few things to think through first.
Step 1: Consider the alternatives to canceling your account
There are lots of good reasons to cancel your credit card account, but there are other solutions for some of them.
For example, your card might have a high annual fee that’s not worth paying, but the card issuer might offer you an incentive to stay. The issuer might offer to waive the fee or to give you points or miles that have an equal or greater value than the annual fee.
Another potential option is downgrading the card to a lower-fee version. That way, your account stays open and active, and it can continue to contribute to your credit history. In fact, your account number may not even change, just the terms of the card. This option can also help you retain your rewards.
Step 2: Figure out your unused rewards
If you have a rewards credit card, you need to figure out what to do with any remaining points, miles or cash back before you actually close your account.
If you have a card that’s co-branded with a retailer or travel provider, your rewards are typically transferred to the airline, hotel or store loyalty account every month. They are yours to keep whether or not you remain a cardholder.
But if the rewards program is specific to the card issuer, then there are different rules. For example, Chase Ultimate Rewards points can be transferred between your eligible accounts, or with anyone from your household at any time.
But with American Express Membership Rewards, you immediately lose all of your points when you cancel your card, unless you also have another Membership Rewards earning card. This is why it can be advantageous to downgrade your sole Amex card that offers Membership Rewards points rather than canceling it.
Citi gives you 90 days to redeem your rewards after closing your account. You'll forfeit any unredeemed rewards with Capital One upon account closing.
Step 3: Change your payment method on your recurring payments
To prevent any disruptions to your mobile phone, streaming or other services, change your automatic charges to a different form of payment.
Start by going through your last year of statements to look for recurring payments. Then, login to your accounts and update your payment information. A little effort ahead of time can save you a lot of aggravation later.
Step 4: Call your issuer
Once you’ve considered your alternatives and accounted for your remaining rewards, it’s easy to cancel your card.
You can call your card issuer with the number on the back of your card, but it can also be easier to send them a direct message through their secure online messaging system.
Most card issuers will then transfer you to an “account specialist” in their retention department, whose job it is to convince you not to close your account. A firm yet polite “no thank you” should do the trick.
Once canceled, you can destroy your remaining plastic cards by cutting them up, although metal cards will have to be mailed back to the issuer, which will send you a postage-paid return envelope for this purpose. You can then change the payment method for any subscriptions you have, and that’s it.
What happens when you cancel your credit card?
When you cancel your card, you and any authorized users are no longer able to make charges to that account.
To be clear, you will still have to pay any existing charges under the previous terms of the account. Once the account has a zero balance, it will stop reporting balance and payment information to the major consumer credit bureaus, but that account’s history will still appear on your credit reports.
And if you cancel shortly after your annual fee is billed, you may receive a credit toward that amount. Also keep in mind, if you’ve recently earned a card’s welcome bonus and then try to cancel your account, the issuer could revoke the bonus.
Should you never cancel a credit card?
There’s a common myth that you should never cancel a credit card, but it’s no more than that. Certainly, it can make sense to cancel a card that no longer meets your needs, especially if it has an annual fee.
On the other hand, there’s little reason to cancel a card that has no annual fee, as it continues to add to your credit history, even when not used.
Think of an unused credit card as being like a driver who never drives, and therefore never gets a ticket or causes an accident. For such a person, canceling a credit card could significantly reduce their available credit, and prevent them from continuing to build their credit history.
