Upgrade To An Unsecured Card
Instead of closing a secured credit card, ask your credit issuer if they can upgrade you to an unsecured credit card. Some issuers upgrade you automatically after you demonstrate responsible credit use for a specific period of time. If your credit issuer is not able to graduate you to an unsecured card, they may be able to tell you what you can do to earn an upgrade in the future.
Does Closing A Credit Card Hurt Your Credit Score
Closing a credit card account can hurt your credit score. But the impact varies based on the circumstances. Closing your oldest credit card account usually causes the most damage, according to WalletHubs analysis. That makes it seem like your credit history is shorter than it really is. Closing an unused account with a high spending limit can also cause problems. Doing so reduces your available credit without changing your spending, which increases your overall credit utilization.
In other words, canceling a credit card account can affect two big parts of your credit score:
Withholding Or Reversing A Payment After It Has Been Made
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If You Decide To Cancel
Sometimes canceling makes sense. For instance, divorcing couples with joint credit cards should aim to close down those accounts. Or maybe youve come to the realization that a $450 membership fee for American Express Platinum or Citi Prestige is a bit too steep if youre not getting value from the service and rewards, and your request for a reduction/waiver was rebuffed.
If you do need to cancel a card, try to offset the loss in that credit limit with additional credit on other cards. The easiest move may be to call up your remaining card issuers and request a credit limit increase. Or apply for a new credit card that offers a credit limit similar to the card you’re canceling but doesn’t charge an annual fee.
Opening a new card might cause a small but temporary reduction in your credit score. I wouldnt worry about it, says Schulz. Its not nothing, but its nothing like the impact of having your credit utilization rate go way up when you cancel a card, which can have a far more negative impact.
How To Cancel A Credit Card Without Hurting Your Score
With banks, grocery stores, credit unions, and department stores all offering lines of credit, it can be all too easy to have a collection of credit cards. When each card offers unique travel and cash back rewards designed to motivate you to spend, the situation can quickly get out of control. The average American cardholder has 3.7 credit cards, so if you find you have too much plastic in your pocket, you may be wondering how to cancel a credit card to get control of your finances.
First, it is essential to consider if canceling your credit card if the right choice for you. Canceling your credit card is a simple solution to a complex problem, and there may be repercussions that affect your credit score or ability to qualify for loans. In addition, if youre like most Americans with an average of $6,375 of credit card debt, you likely have unhealthy spending habits that may cause you to further into debt even if you do cancel a card. Before making a decision, youll want to weigh the pros and cons of canceling your credit card and make sure youre not deactivating your credit card for the wrong reasons.
If you feel confident about your decision to cancel your credit card and you have talked to a financial advisor, keep reading below to learn how to cancel a credit it card:
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How Canceling A Credit Score Can Harm Your Credit Score
Canceling a credit card may harm your credit score because one of the key factors in determining your credit score is your credit history. So, by canceling a card that youve owned for many years, you could end up shortening your average credit history, which in turn may knock some points off your score.
Your credit score may also drop if you cancel a card when you have high balances on other credit cards.
One of the other criteria in determining your credit score is the amount of credit you have in use as compared to your total available credit, also known as . When you cancel a credit card, the amount of your total credit available will drop and it could decrease significantly if you had a high credit limit on the card you canceled.
For example, if you have 5 credit cards each with a $10,000 credit limit, your total available credit would be $50,000. If you cancel 1 card, your credit limit will fall by 20% .
If you have a total balance due on these cards of $15,000, you will have 30% of your available credit in use before you cancel . Since the goal is to stay at or under 30%, youd be in good shape.
But if you cancel 1 of the cards, you will be left with only $40,000 of available credit. So now your credit utilization will rise to 37.5% , bringing down your credit score.
But dont fret! We have the answers below on how to cancel a card without hurting your score.
Ask For A Product Change
If you are unhappy with your credit card, call your credit issuer and request to swap your credit card for another card offered by the same issuer. If you have a credit card with an annual fee, for example, ask if you can downgrade your card to a no-annual-fee version. You might even be able to swap a cash back credit card for a travel rewards card .
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Increases Your Credit Utilization
Your credit utilization ratio is determined by the amount of available credit you are currently using across all lines of credit. If your account has low to no balance and you cancel your card, the credit available to you will decrease. If you have a lot of debt on other cards, this can have a larger negative impact.
Closing A Credit Card Isn’t As Simple As Cutting It In Half Cnbc Select Advises On How To Cancel A Credit Card In Six Steps So You Ensure Your Account Is Closed Properly
Selects editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.
Closing a credit card isn’t as simple as cutting it in half. There are some steps you need to follow to ensure your account is closed properly. After all, you don’t want to be hit with any fees or miss out on leftover rewards.
Below, CNBC Select explains the six steps you should follow if you want to cancel a credit card.
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Why You Should Close A Credit Card
You’re overspending: If having access to a credit card tempts you to spend more than you normally would — particularly if it’s landing you in debt — you should consider closing your credit card. Keep in mind, though, that regular credit card usage is key to building and maintaining good credit. Consider leaving your credit card at home and using it to pay one or two small bills each month.
Your interest rate is increasing: If you’re currently paying off a card balance, and you get a notice that your interest rate is increasing, the Credit Card Act of 2009 gives you the right to opt out of that increase — as long as it’s not due to a late payment. Doing so will likely result in the closure of your account, but you’ll be able to continue paying off your balance at the current rate.
It charges an annual fee, and the benefits don’t make up for it: If your credit card charges an annual fee, make sure you’re earning enough rewards and benefits to make up for that fee. If not, you’ll want to close the card, or downgrade to a no-annual-fee version if possible.
It doesn’t match your spending habits: The best credit cards come with generous rewards programs and benefits that line up with your spending habits and maximize your savings. If yours doesn’t, you might want to consider getting one that does. However, as long as it doesn’t charge an annual fee, leaving it open doesn’t hurt — and might even help — your score.
Do Unused Credit Cards Affect My Credit Rating
The answer to this question is not definitive either way, but the short answer is: probably.
If you have lots of unused credit cards then many lenders will see this as a sign that you do not spend money on credit. This means you are lacking in a debt repayment history.
Having a history of debt repayments goes on your credit file and it shows lenders that you can manage paying debts. They may also be concerned that you have so much credit at your disposal, which you could spend all in one go and lower your chances of being able to repay it on time.
If you have multiple credit cards, then you may want to spread your spending across them so that you’re not near your limit on one credit card. Unless you have great organisation it can be difficult to track all these cards and you might get stung with being charged an annual fee for a card you really should have cancelled but forgot to.
Essentially, if you have too many credit cards, you should probably close a few down, but you don’t have to close them all.
And if you’re maxing out on one credit card, but not desperate for credit, then you should try using your other old credit cards to spread out your overall spending.
This could improve your credit score, or prevent it from appearing to credit providers that you are desperately in need for credit.
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Cancel A Chase Credit Card Via A Written Request
Those who want to cancel via the mail need to write a short letter that includes their full name and address. The letter should also include the credit card number and a short cancellation request. Ask Chase to notify the credit bureaus that the account was closed by the account holder.
Take the letter to the post office and send it certified. Keep a copy of the letter and tracking information on hand.
Consider These Options Before You Decide
As interest rates continue to rise, consumers may be tempted to cancel those credit cards that carry the highest ones. But breaking up with your credit card isn’t always painless or wise.
There are very few reasons to cancel a credit card, says John Ulzheimer, a credit expert who has worked at Equifax, one of the big three credit bureaus, and FICO, the firm that runs the calculus that determines credit scores used by the most lenders.
If you want to break up with a credit card, you need to be cognizant of what trouble this seemingly benign action is going to cause, he adds.
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S To Take After Cancelling Your Bmo Credit Card
After closing your BMO credit card account, consider doing the following:
- Write down the day and time of your conversation with the BMO representative who handles your card cancellation. In case theres an issue, you can refer back to that conversation, since calls are typically recorded for quality assurance purposes.
- Get written confirmation of the cancellation, whether via email or a mailed document.
- Cut your credit card up in pieces before tossing it in the trash.
Your Spending Is Out Of Control
If you cant control your spending, it may be best to get rid of the temptation of putting expenses on a credit card.
If theres a concern that having that available credit is going to possibly entice to do something they dont want to do, then that would be an opportunity to close out the card, says Larry Sprung, a Certified Financial Planner whos the founder and president of Mitlin Financial in Hauppauge, New York.
Even if theres a temporary hit to your credit score, canceling a credit card can give you time to learn about money and curb any temptation to spend. Once you can manage your finances responsibly, you can always get a credit card again.
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What Happens When You Close A Credit Card
When you close a credit card, youll no longer be able to use it. Youre still responsible for making payments on the outstanding balance of the card. Depending on the type of rewards earned from the card, you may lose access to them. Its important to consider your rewards before closing an account.
Similarly, closing a credit card can impact your credit score. You should understand how your credit score can be impacted before you close a card to avoid any unintended consequences.
The Impact On Your Credit Score
The main risk when you cancel a credit card is the potential negative impact on your credit score. In the land of FICO credit scoring, your credit utilization ratio helps account for 30 percent of your score. Thats a mouthful of a term, but its a simple math equation: the sum of all your credit card balances divided by the total credit limit on your cards. There is no magic ratio you want to shoot for, but lower is better.
The problem with canceling a card is that you immediately reduce your available credit limit. Even if your spending doesnt change, your credit score could fall because your utilization rate goes way up, says Ulzheimer.
If your utilization rates jumps from 30 percent to 60 percent, you could see your credit score fall 50 points or more, he says. Thats a severe haircut that could cost you plenty more than the annual fee.
FICO credit scores range from 300 to 850. A score of 760 puts you in good shape to qualify for the best rates when buying a home, getting car insurance, or taking out a loan. Recently, someone with a FICO score of at least 760 might be able to qualify for a 4.2 percent interest rate on a 30-year fixed-rate mortgage. If a higher credit utilization ratio caused the 760 score to drop to 710, the interest rate could rise to more than 4.6 percent. On a $300,000 mortgage, that could add about $40 a month to a mortgage payment, or about $500 a year.
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Remember To Redeem Any Rewards
Rewards on cards that offer perks like travel credit or cash back dont have to be forfeited entirely when you close your card. Look at the requirements on your rewards to see if there are any thresholds you are close to reaching. You may only be a few miles from a plane ticket or a couple of dollars from the cashout minimum. Talk to your credit card company as some offer a statement credit in exchange for your accumulated miles.
How To Remove Credit Cards From Your Credit Report
In some cases, you may be able to remove an old credit card from your credit report. This can be beneficial for you if the account has any delinquencies on it and it is negatively affecting your credit score.
The first step in this process is to verify how long the account has been on your credit report. While negative account information is supposed to be automatically deleted after 7 years, this doesnt always happen the way its supposed to.
If youve checked all 3 of your credit reports and the information is still showing up, send a letter to the credit bureaus requesting that the account be removed.
Sometimes, a collection agency will purchase old delinquent account balances often, data from the agency will also show up on your credit report, even though its the same debt. If this is the case, provide proof to the credit bureau that the debt is being listed more than once on your credit report. It can also be beneficial if you send a letter to the reporting creditor.
If none of these actions work, the next step may be to contact an attorney specifically one who specializes in consumer rights. Often, when a creditor or collection agency receives a letter from an attorney, it is enough for them to remove the data from your credit report.