how to cancel a credit cardYou may want to know how to cancel a credit card for various reasons. Maybe you have too many cards and are tired of keeping track of all your accounts. Or maybe your wallet is just too full, and you want to simplify your finances. Some people want to know how to close a credit card because they’re having trouble controlling their spending, while others no longer want to pay an annual fee for a card they rarely use. Regardless of the reason, it’s essential for you to understand the process. To help, we’re breaking down some things you should consider before you cut up the card and call your card issuer.  After considering the consequences, if you do decide to cancel, we also explain the necessary steps for canceling a credit card.

Understand the consequences before canceling

In some cases, keeping your card, even one you don’t use that often, is better. There are a few reasons why this is the case.

You should understand how your credit history affects your credit scores. If you close the card you’ve had for the longest amount of time, you shave those years off your credit history, which could negatively impact your scores.

Credit utilization — a comparison of your used credit to your total credit limits — is another important factor to consider, as it directly impacts your credit scores. If you have outstanding balances, having more cards in your arsenal keeps your credit utilization lower. For example, if you have one card with a credit line of $12,000 that you have a $6,000 balance on and another card with a credit line of $12,000 that you have no balance on, your current credit utilization is 25%. If you closed down the card with no balance, the credit utilization now jumps to 50% because you’re using 50% of your available credit. That can cause your score to dip.

You may want to keep a credit card, even one you’re not using, in case there is an unexpected expense that arises. You might have to fund car problems, home improvement or a medical emergency. Having access to a credit card can lower the amount of interest compared to what you might pay if you took out a loan.

Canceling your card also means you’ll also want to stop any recurring charges that are coming to it, like a gym membership or media subscription. If you don’t and your inactive card is charged for services you use, you might have to pay merchant fees for returned payments.

Consider the alternatives

Before you cancel your credit card, think about other options.

Cut back on usage: You could store an unused credit card or cut it up and throw it away but still keep the account open. As long as you’re not paying an annual fee for that account, you’re not losing any money. The benefit is that you’re building up credit history and keeping a line of credit that can positively impact your credit utilization. The downside is if you don’t use the card often (usually at least once per year), the issuer may cancel it for you. As such, cutting it up or throwing it away may not be the best solution. Consider storing it in a secure location, like a safe or locked drawer, instead.

Consider a balance transfer: If you want to cancel a credit card so you stop accruing debt on it, and you still have an active balance, consider transferring that balance to a balance transfer credit card. Balance transfer credit cards are designed to have long 0% intro APR periods or reduced APR on balance transfers, so you get some breathing room to pay off your balance. You will likely have to pay a balance transfer fee, but these one-time fees are usually worth paying when you compare them to your current credit card’s interest rate. Some balance transfer credit cards even come with other rewards, so if you do decide to use the card for purchases, you’ll get cash back, points or travel rewards.

Take a second look at the card: When you have multiple credit cards and are feeling overwhelmed, it can help to take some time to refresh yourself on each card’s rewards structure and perks. For example, if you want to cancel a travel credit card because it has an annual fee, you may discover that using the card for travel purchases is in your best interest, since the bonus points you get with that card more than make up for the fee. Doing your research before you cancel any credit card account is important, anyway, because when you try to cancel, you may be offered new perks for staying. You’ll want to know how new offers may benefit you if you decide to keep the card.

How to cancel a credit card

If you plan on applying for a new card, you should do so before canceling the old one, so that you apply for your new card with your current credit score intact. To cancel a credit card, follow these steps.

1. Understand the impact on your credit. If you need to use your credit for something soon, like applying for a home loan, for example, you may want to wait until after that process to close your account. Even if your credit utilization won’t be affected because you aren’t carrying any balances, you’ll still want to be aware of how the account history of the closed card may impact your score.

2. Redeem any earned rewards. If you close your account before you redeemed your rewards, you won’t be able to go back and claim them, so be sure to use up your cash back or travel points before you close your card.

3. Apply for a new card (if you’re looking to open a new line of credit). If you want to get a new credit card with a structure that works better for you, apply for it before you request to cancel your old credit card.

4. Call the number on the back of your card to cancel. This is the easiest way to get in touch with the right department that can handle your request. Be aware that you may be pressured to keep your card or enticed with new offers if you keep it.

5. Ask about repayment details if you owe a balance. If you have an active balance on the card you want to cancel, ask about freezing charges to the account so you can focus on paying off the balance.

6. Contact your bank for confirmation. The process can take around a month to complete. If your credit reports show the account is still open after a couple of months, contact your card issuer again to get confirmation that the credit card has been canceled.

To Keep or Not to Keep?

As you can see, there are many factors affecting credit score. In some cases, it may be wise to hold on to your plastic, even if you stuff it in a drawer and use it once per year. If you do need to cut ties, make sure you’re confident with your decision and have decided on next steps (like opening a new better rewards card or moving debt to a balance transfer credit card) that make sense for your finances.