There are countless reasons why you might consider closing your old credit card. Perhaps you’ve spent too much on credit in the past and want to prevent yourself from going down that rabbit hole again. Or maybe you’re ready to upgrade to a new rewards credit card and plan to cut back on your old card. 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 really happens when you close an old account?
Closing an old credit card account is more than just a pull. Once you’ve decided to close your credit card, you’ll need to call the 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 regarding your account
Sometimes, your credit card company will cancel your card without question, but other times, they’ll try to convince you to change your mind. Sometimes they will even transfer you to a customer retention department for the sole purpose of enticing you to keep your card. They may even offer you 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 politely decline these offers and proceed to close the card. Just remember, closing an account means it will be closed.
Closed accounts reported to credit bureaus
Within one month after you close your account, the action will be reported to the credit reporting agencies: Experian, Equifax, and TransUnion. However, closing an account doesn’t mean its positive impact is over. According to Experian, accounts without a negative sign can remain in your credit history for up to 10 years.
As long as your credit card account doesn’t show any negative signs, its impact will be felt for years to come. That’s true whether you close it or not.
Your credit score may temporarily drop
Closing an account can have a negative impact on 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%), amount owed (30%), length of credit history (15%), new credit (10%) ) and the type of credit used (10%) ).
Factors that can be affected when you close your account are 1) how much you owe in relation to your credit limit – also known as use – and 2) the the length of your credit history.
Use: If you have zero debt on all of your accounts, your usage will be zero across the board. In that case, closing the old account will not change your usage. But if you owe money on other credit cards or loans, closing an old account with a high credit limit can immediately boost your efficiency.
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 of your current $10,000 credit. yes, so your utilization rate is 20%. However, if you close one of the cards, you suddenly used $2,000 out of $5,000 in total credits and now your utilization rate has increased to an unwarranted 40%.
Length of credit history: Closing an old credit card can certainly lower the average age of your credit history, especially if the card you’re closing has been established a long time ago. According to Experian, this is another reason why your score may drop temporarily if you close your 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, you should instead keep it open and simply cut the card or put it in a drawer.
Keeping an old account open allows you to extend the average age of your credit account over time, plus it keeps your usage as low as possible. And if you don’t close your old account, you don’t have to worry about closing your account negatively affecting your credit.
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If you still insist on closing your account for any reason, here’s what you should do first:
Step 1: Cancel any automatic fees associated with the card
Before you close your credit card, you’ll want to cancel any autopay favorites for the account, including gym memberships, subscriptions, or utilities that you’ve automatically paid for. for your card. You’ll want to transfer these costs to a credit card or other form of payment. Otherwise, you may face late fees or penalties – or even your credit report – when these services try to bill a canceled credit card.
Step 2: Pay your credit card balance in full
Before you close your credit card, you need to pay your balance in full. Make sure you authorize any pending purchases to be posted before mailing a final check or making a final payment online. Once your last payment is posted and your account balance drops to zero, you’ll be able to continue.
Step 3: Redeem all your rewards
Closing an account means losing any credit card rewards you’ve earned in the process. Before calling your card issuer to close your account, you’ll want to redeem your rewards whichever way works best. Usually, the easiest redemption is 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 contact the department that will actually close your account. Just remember to stick with 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 was done
To monitor and make sure your account is closed, you can check your free credit report on AnnualCreditReport.com or sign in to a free account with Credit Karma. Either way, you’ll want to double check that your account is securely closed.
Step 6: Follow up, if needed
If your credit report hasn’t been closed within two or three months, you should contact your card issuer. Call back the number on the back of your card to make sure your account has been closed as required. If not satisfied, you may also want to consider sending a certified letter stating your request to close your account using the address listed on the back of your card.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]
