I’ve learned a lot about credit cards and have had over 100 accounts while maintaining a score over 800. That’s why you need to know how to cancel a credit card the right way.
Closing a credit card will cause your credit score to drop since you’ll have a lower available credit and a thinner credit history. Alternatives to canceling a credit card without hurting your credit score: upgrading, downgrading, or moving your available credit limit to another card.
If you have no annual fees and don’t have too many credit cards with that same bank, keep your credit card open forever. Just make sure that there’s some activity so it doesn’t get closed. This will keep your credit history strong so you can maintain a high credit score. BUT, if you have an annual fee, high-interest rates, or too many credit cards with one bank there are alternatives to closing a credit card so you don’t hurt your credit score. In this post, I’ll show you how you can close a credit card without hurting your credit score.
How do you cancel a credit card the right way?
When you directly cancel a credit card you might be lowering your credit score. Although there are some circumstance where closing a credit card is the right decision, but to get to that point you need to build a strong credit profile. To close a credit the right way, you’ll need to look at your options:
- No annual fee? Keep the card open
- As long as you’re not losing any money, you should keep your credit card open. I know it may be hard to manage and to remember all your accounts, but there are sites like Mint and Google Chrome’s Password manager to help you manage any alerts for the accounts. Maintaining a high credit score is important because it can save you money and make you money.
- Is there an annual fee? You can downgrade to the no annual fee card
- Credit cards that typically have an annual fee can be downgraded to a “no annual fee” version. The downgrade maintains the same account number and credit history so there is no change to your credit score.
- Want a better credit card? You might be able to upgrade your card
- It’s not available for all credit cards, but it’s worth checking with your bank if there are any options available for you to upgrade your credit card. This typically comes with an annual fee, but comes with a lot of benefits.
- Need a higher credit limit? You can ask for an increase
- Most credit cards will automatically increase your limit if you’re actively using their credit card. If you need a higher limit, they’ll very likely increase it just by asking. Many banks have an option on their website to request an increase without having to call a customer service representative.
- Going to close your card? Ask about a credit card retention offer
- For many credit cards with an annual fee, the bank may present you a retention offer. Instead of closing your credit card, the bank gives you an incentive to keep it open.
In my experience, I ONLY close a credit card if I want to keep my credit card slots open. Most banks limit you to 4 credit cards per bank account. I have 1-2 credit cards with each of the major banks and then use the free slots to apply for the credit cards that have the best sign up bonus.
To put it simply, I only cancel a credit card just so I have room to get more credit cards. The credit cards I keep open have no annual fee. All the credit cards I cancel I have for about 11 months and close them because they have annual fees. These are the same cards with the very lucrative sign up bonuses.
How do I cancel a credit card without hurting my credit score?
You can still cancel your credit card without hurting your credit score by moving your available credit limit to a different credit card. This will only work if you have at least two credit cards with the same bank. So let’s say you have 2 Chase credit cards and would like to close 1. You will need to call to close the credit card, but before closing it request your available balance to transferred to your other account.
- Chase Credit Card #1: $10k Available Credit Limit
- Chase Credit Card #2: $5k Available Credit Limit
- Call Chase to close you credit card #2
- Before they close it, ask them to transfer the available $5k credit line from credit card #2 to credit card #1
- Chase Credit Card #1: $15k Available Credit Limit
- Chase Credit Card #2: $0 Available Credit Limit (closed)
By transferring your available credit limit, your total available credit limit on your credit report doesn’t change. This is how you can cancel a credit card without hurting your credit score. If you just wanted to get another credit card with no interest, you can still do that and keep your old credit cards open.
Deciding when to close a credit card
The right time to close a credit card is when it’s no longer useful to you. If you already have a strong credit history with many accounts, closing one credit card won’t make much of an impact on your credit score. Closing a credit card actually frees up credit card slots with a bank, since most banks only allow you to have 4 credit cards with them. Signing up for multiple credit cards can be in your favor as long as the sign up bonus is worth it. I’ve closed 100 different credit cards while keeping only 10 accounts open forever.
For the accounts I keep open, it’s 1-2 credit cards with several different banks and these all have no annual fees. That’s because it keeps my credit history very strong and I have a score of over 800. Why would I sign up for over 100 credit cards? Because you can a lot of value from the sign up bonuses. If each cards was worth at least $300 in sign up bonuses (most were that or more), that’s a value of $30,000 from the bank. On a self-brag note, I got over $30,000 in value on one first class trip around the world. This one done by getting a lot of hotel points and frequent flyer miles through these credit card sign up bonuses. You can do it too.
What is a Retention Offer?
When you try to close your credit card, the bank may incentivize you with an offer to keep your credit card open for another year. This is commonly known as a retention offer and is seen with credit cards that have an annual fee. It’s very rare to have a retention offer on a credit card with no annual fee.
Some retention offers may be waiving the annual fee or a spend challenge for a point bonus. The spend challenge is something like: Spend $3,000 and get 10,000 points. This would be a low offer because that’s just 3.3x additional points per dollar spent. You’ll need to figure out if you save more money from closing the card or keeping it open to get the retention offer.
Does it hurt your credit to close a credit card?
Closing a credit card means your closing the available credit limit, credit age, and payment history from your credit report. When these are removed from your credit report, it’s very likely that your credit score will go down if these factors play a large percentage of your credit history. Let’s look at an example where you have 4 credit cards:
- Each credit card has a $10,000 limit, 4 years old, and perfect payment history
- This is a total of a $40,000 available credit, average age of cards at 4 years old and perfect payment history.
- By closing one credit card, your available credit limit drops down to $30,000. This will impact your overall credit utilization (see: credit tips)
- When you open a new credit card, that has an age of 0 years. This will cause your average age of credit to drop to 3 years
It’s not enough to know how to close a credit card, but the real question is SHOULD you close a credit card? Each of these factors plays a small roll on your credit in the long run, but if your credit history is:
- New: You haven’t had credit cards for many years
- Thin: You haven’t had many credit cards
You should consider alternatives to closing a credit card because closing a credit card will hurt your credit score in the above situations. For people with a longer credit history and large available credit limits, their credit score still may drop a little. That’s why you can cancel your credit card in a way that doesn’t hurt your credit score.
How many credit cards should I keep open?
I keep 10 credit cards with no annual fee open to have a long and healthy credit score. There’s no magic number, but this works for me since I cycle through another 10 different credit cards annually for the credit card bonuses. It may sound crazy to have that many, but when you learn about how good the sign up bonuses are and how to actually make money from credit cards, you’ll see why it’s worth it. That’s something we’ll cover in the future. For today, we’ll discuss how do you cancel a credit card and how that affects your credit score.
Can I cancel a credit card?
You can cancel a credit card, but you should consider if you need to. Closing a credit card will negatively impact your credit score if you don’t do it correctly. It doesn’t mean you should never cancel any credit card you get, you should definitely consider the situation. Personally, I have about 10 credit cards with no annual fees that I’ve kept open for an average of 7 years. I’ve had over 100 credit cards and it actually helped improve my credit score.
Should I close unused credit cards?
If you have unused credit cards with no annual fee, keep them open. It helps your credit score by adding to your history and your total credit limit. By having a stronger credit score a longer credit history, this helps you achieve a high credit score with higher credit limits. In the long run, keeping an unused credit card open will drastically strengthen your credit profile.
How do you cancel a credit card?
The easiest way to cancel a credit card is through your bank’s messaging app. I’ve done this plenty of times with American Express when I just ask them to close a card, upgrade or downgrade it. Not all banks allow this type of service, so you will very likely end up calling the bank (the phone number is on the back of the credit card) and request that your credit card account to be closed. They will read a long disclaimer about what’s happening
Is it better to cancel a credit card or let it expire?
Every credit card has an expiration date. That doesn’t mean the account closes on that date, it just means the bank will send you a new credit card about 3 months before the expiration date. The only way to close your account is by you closing it or if the bank closes your account due to inactivity. Don’t cancel a credit card and don’t let the bank close the account. This will hurt your credit score.
What happens when a bank closed my credit card due to inactivity?
When a bank closes your credit card due to inactivity, it will hurt your credit score. As I mentioned above, this lowers your overall available credit limit, credit age and payment history. But, it’s actually much worse when a bank closes your credit card. It shows on your credit report that the bank closed the card and you didn’t choose to close your card. It sounds confusing, but think of it this way: Did you sell your house? Or did the bank sell your house due to foreclosure?
Will closing youngest credit card hurt my credit?
If you have an established credit history with multiple banks and multiple credit cards that are currently open, then no. I actually close most of my credit cards after 11 months of having them. Since most of the premium credit cards have high annual fees, I just use them up for their bonus.
How much does closing a credit card hurt your credit?
There’s no exact number for how much closing a credit card will hurt your credit. It’s different for everyone because it depends on your credit age, history, available credit, and how much all that changes by closing your credit card in relation to your current score.
How to close a credit card account sample letter?
You don’t actually need a sample letter to close your credit card account. You can just call or message the bank online. A simple “I would like to close X account” will be enough.
Before deciding to close your credit card, you should consider if you don’t need to. A big factor to having to close a card is the annual fee, which is why you have the option of downgrading your credit card to a new annual fee alternative. The bank wants to keep your business because they make money off the credit card transactions.
If you just want to close the credit card because you think you have too many, don’t do it! Just use MINT to track your spending and alert you if there are any purchases exceeding a very small limit. The benefits of having an old credit card on your credit report will give you an impressively strong credit score. Make sure to keep any credit cards with no annual fees open as long as you can. Keep them active by having small recurring purchases and autopay. Set up alerts for any other charges that may appear.
Upgrading your credit card to a more premium version is an option with some banks. This will give you better benefits and in some cases a higher credit limit. If you have a credit card with an annual fee, you can downgrade it to a no annual fee version while still keeping your credit history the same for that card. Instead of asking for a credit limit increase, it may make more sense to apply for another credit card. Most banks allow you to have 4 credits cards or more with them. For some people, it makes sense to have a no interest 0% APR credit card if they have to carry a balance. That’s like getting a temporary free loan from the bank.