If I Cancel a Credit Card, What Happens?

When considering canceling a credit card, understanding the potential outcomes is important. This action affects your financial standing, from your credit profile to how your accumulated rewards are managed. Be aware of these consequences before proceeding with the cancellation.

Impact on Your Credit Profile

Closing a credit card affects your credit profile, primarily concerning your credit utilization ratio and the length of your credit history. Your credit utilization ratio, the amount of credit you are using compared to your total available credit, can increase when an account is closed. This occurs because closing a card reduces your overall available credit limit, making your outstanding balances a larger percentage of your remaining credit. For instance, if you have a total credit limit of $10,000 across multiple cards and a $2,000 balance, your utilization is 20%; closing a card with a $3,000 limit would reduce your total available credit to $7,000, increasing your utilization to approximately 29% for the same $2,000 balance. Maintaining a credit utilization ratio below 30% is advised to positively influence your credit score.

The length of your credit history also plays a role in your credit score. Closing an older credit card can reduce the average age of all your credit accounts, which may negatively impact your score. While closed accounts in good standing can remain on your credit report for up to 10 years and continue to be factored into your score, closing a long-held account can still shorten your overall credit history’s average age.

Your credit mix, which refers to the different types of credit you manage (like revolving credit cards and installment loans), also contributes to your credit score. While a less significant factor, closing a credit card could alter your credit mix, particularly if it is your only revolving credit account. The impact on your score from changes to your credit mix is minor, especially if you have other diverse accounts. Any negative effect on your credit score from closing a card is temporary and may recover within a few months if you continue to manage your other credit accounts responsibly.

Handling Account Balances and Unused Rewards

When you cancel a credit card, any outstanding balance does not disappear. You remain responsible for paying off the entire debt, and the card issuer will continue to send statements until the balance is paid in full. Interest will continue to accrue on the outstanding balance, even after the account is closed. The annual percentage rate (APR) on your balance remains the same unless it is a variable APR or the issuer provides advance notice of a rate change. You must continue to make at least the minimum required payments by the due date to avoid late fees and negative impacts on your credit report.

Regarding unused rewards, the policy varies by issuer and rewards program. For general rewards points, cash back, or miles accumulated directly with the card issuer, closing the account may result in forfeiture. Redeem or transfer any earned rewards before initiating account closure to avoid losing them. Some card issuers may offer a grace period during which you can still redeem rewards after the account is closed.

If your credit card is co-branded with an airline or hotel loyalty program, the points or miles you earned are held within that loyalty program, not directly by the card issuer. These rewards remain available in your loyalty program account even after the credit card is closed, though they are subject to the loyalty program’s terms, including any inactivity or expiration policies. Reviewing your cardholder agreement or contacting the issuer directly about their rewards forfeiture policy provides clarity.

Steps for Closing Your Account

Before initiating the closure of a credit card account, complete certain preparatory steps. Confirming a zero balance on the card prevents continued interest charges and simplifies the closure process. Redeem any accumulated rewards points, cash back, or miles, as these may be forfeited upon account closure. Update any recurring payments or subscriptions linked to the card to a different payment method to avoid service interruptions or missed payments.

To formally close your account, contact the credit card issuer directly. This can be done by calling the customer service number on your card or the issuer’s website. Some issuers offer online options for account closure through their website or mobile app. During the call, clearly state your intention to close the account. Be prepared that the issuer may try to offer incentives to keep your account open.

After requesting closure, obtain written confirmation from the card issuer that the account has been closed at your request and that the balance is zero. This documentation serves as proof of closure.

Once the account is confirmed closed, securely destroy the physical credit card to prevent unauthorized use. For plastic cards, cut through the magnetic stripe, chip, and account numbers. For metal cards, you may need to return them to the issuer for disposal. Finally, monitor your credit report in the months following closure to ensure the account is reported accurately as “closed at consumer’s request.”