How to Cancel a Credit Card

    

4 minute read

People often sign up for a credit card based on short term benefits and lucrative welcome offers that make a card’s value to users higher in the first year. Credit cards with no annual fee are easy to justify holding year after year, since they don’t require you to spend any money in later years when the card is less valuable. However, if the renewal date is coming up on a credit card with an annual fee, you’ll then need to decide whether the card is worth keeping open despite having to pay the fee.

For those who want to cancel a credit card because they feel that the annual fee doesn't justify the perks of the card after year one, below you will find everything you need to know to decide whether to cancel a credit card after the sign up bonus and whether it makes sense to downgrade or change product instead.

If you do decide to cancel your credit card, the process varies by card issuer but it is generally very easy. You simply have to call the number on the back of your credit card and inform the bank that you wish to close the card account completely. If you’re allergic to making phone calls (like me), you’ll be happy to know that most banks allow you to close a card by simply sending a secure message through your account or using the online chat function.

Now that you know how to cancel your credit card, there are some things you may want to consider before pulling the trigger.

Related: Card Curators Guide to Choosing the Right Credit Card

Here are the things to consider before you make a decision as to whether to cancel your credit card.

Potential Retention Offers

If you are considering closing a credit card due to the annual fee being due, you should call the card issuer first to see if they have anything to offer you in exchange for keeping the card open. This is known as a retention offer and generally comes in the form of extra bonus points or a statement credit. These offers are meant to entice you to keep your account open for another year and to continue using the card. Retention offers vary and generally come in one of the following forms:
Discounted or waived annual fee.
Bonus points or rewards.
Statement credits.
Spending offers- instead of giving you points outright they offer you a bonus for meeting certain spend requirements.


Effect on Your Credit Profile

Keeping a credit card open is likely to have a positive impact on your credit score since it improves your credit utilization ratio and your average age of credit metrics. These two factors are very important when it comes to calculating your FICO score. The credit utilization ratio is the amount of revolving credit you're currently using divided by the total amount of revolving credit you have available. In other words, it's how much you currently owe divided by your credit limit, so by closing a credit card without transferring its credit line to another card, you lower your available credit.

Furthermore, If you close a credit card that’s been open for longer than your other accounts, then your average age of credit will decrease. On the other hand, if it’s a new card and you have a long credit history it would go the other way since closing your newest cards will increase your average age of credit.

Learn More: Beginner's Guide: But What About My Credit Score?

Available Downgrade Options

Before you close a card, it makes sense to check if there are any no fee downgrade credit card options or even options with a lower annual fee. If you can break even on the annual fee through the value you receive from the credit card’s other benefits, it’s probably more beneficial in the long run to downgrade or change product rather than cancel.

Downgrade Rules

Most banks have specific rules when it comes to downgrade and product change options for credit cards. If you are downgrading a rewards card, the bank will only let you downgrade to another card in the same rewards family. For example, if you have a card that earns Chase Ultimate Rewards Points, you can’t downgrade to a Chase airline card since they are different types of credit cards and earn different types of rewards points. Additionally, personal credit cards cannot be downgraded to business credit cards and vice versa.

Learn More About the Different Types of Rewards Points.

Benefits to Downgrading Rather than Cancelling
Keep Your Hard Earned Rewards

If you haven’t used all of your credit card rewards points or accumulated cash back, you may lose them when you cancel the credit card. By changing to a no fee option within the same rewards program, you’ll usually get to keep your hard earned points and continue to earn them.

Avoid a Negative Relationship with the Bank

I often refer to miles, points and travel awards as a marathon rather than a sprint, and one thing you want to avoid is tarnishing your relationship with the bank just to save a couple of bucks. Banks prefer customers who keep their accounts open longer since it gives them the ability to recoup some of the value lost in the first year when they fork over hefty bonuses. This is not to say you have to keep all of your cards open if it doesn’t make financial sense, but if you can find a way to justify it, it helps to build a longstanding relationship with issuers.

When is Cancelling Better than Downgrading

Of course, there are scenarios when it makes more sense to cancel your credit card outright. When you product change to another credit card, you are then not eligible for the sign up bonus on that credit card. If you are dealing with American Express for example, you never want to product change to a card you haven’t had before because the welcome offer is once per lifetime per card, and generally only available to those who don’t already have the card.

Related: American Express Application Rules

Another scenario when it makes sense to cancel your credit card before the annual fee hits, is when there are no available downgrade options or if the bank won’t allow you to switch.

Final Thoughts

Prior to cancelling a credit card, you should consider product changing or downgrading your card. However, if it makes the most sense for you to cancel, simply contact the issuer and let them know you’d like to close the account. (Who knows, maybe you’ll luck out with a juicy retention offer.)

Written by Bethany Walsh
Bethany is Card Curator’s travel rewards expert. She is a native New Yorker and a miles, points and loyalty program strategist. Bethany is also the founder of Bougiemiles.com, where she works to teach people that luxury travel is never out of the budget. Her favorite vacation spots include Hong Kong, Toronto and any place with a beach. Bethany lives for a deal and has had a love (read: obsession) for the miles and points game ever since she received her first sign-up bonus. When Bethany is not lying on a beach or analyzing mileage award charts, she enjoys spending time with her foster dogs (plus her four pets) and volunteering for an animal rescue.

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