3 Valid Reasons to Cancel a Credit Card in USA
You’ve probably heard that you shouldn’t cancel a credit card to avoid negative impact on the credit score. While it’s true that canceling could affect the credit score, it’s not always the case.
So, is it bad to cancel a credit card?It is highly recommended to keep your credit cards active, even if they are unused. However, there are some valid reasons why you might want to cancel a credit card. And listed below are some scenarios in which canceling a card might be the best thing to do.
(1) Separation or divorceIt is best to close joint credit card accounts during a separation or divorce. As a joint cardholder, you will be responsible for any past or future charges to the account. If that happens, or even if there are routine charges on a joint account after separation, the charges will be your responsibility. Your divorce document may say that your ex-spouse is responsible for the debt, but that won’t relieve you of your obligation in the eyes of the lender.
(2) High Annual FeesIf your card issuer charges a high annual fee for an account you do not use, cancellation may be warranted. However, first consider the following: If you receive benefits from the account that exceed the annual fee, such as travel credits and benefits, it may be worth assuming the annual cost. A fee from a credit card that you don’t use or get benefits from in any way is not justified. Before you cancel the card, try calling the card issuer to ask that the annual fee be waived. Be sure to mention that you are considering closing your card account. It doesn’t hurt to ask. And who knows, the fees may get slashed. Read – 4 Ways to Get First Credit Card in USA
(3) Too Much TemptationSome people find irresistible temptation to use credit cards because of heavy discounts or high reward points, etc. And this may be a valid reason to cancel a card. But there are other simple to implement alternatives that can help curb spending without sacrificing the credit score. For example, whenever you go outside, keep the credit cards at your home. By not having your cards on hand, you may find it easier to resist the temptation.
Action Items – Before & After CancellationWhen canceling a credit card, follow these six simple tips to help you get through the process:
- Redeem unused rewards on your account before cancelling the card.
- Ideally, pay off the entire balance on the credit card by bringing the outstanding balance to $0 before canceling the card. Or at the very least, minimize your balances as much as possible.
- Call/Email your credit card issuer to cancel and confirm that your account balance is NIL.
- Send a certified letter to the card issuer to cancel the account. Send a certified letter to the card issuer to cancel the account. In the letter, ask them to mail you a letter confirming your $0 balance and the status of the closed account. Email is the best way as everything is in written.
- Check your three credit reports between 30 and 45 days after cancellation to make sure that – the account is reported as closed by the cardholder and your balance is $0.
- Claim and report any incorrect information on your reports with all three credit bureaus.
Canceling a credit card will not lower your credit historyClosing a credit card will not remove it from your credit reports. As long as the credit card remains on your report, you will continue to get the value of the account’s age. The only way to lose the card’s age value is if it is removed from your reports. Check out: How to build credit history in USA
Why their is a credit loss?This drop in score often occurs because canceling a credit card can impact the credit utilization rate. It is a measure of how much of your total available credit is being used, according to your credit reports.
ConclusionDon’t close a credit card account without good reason. Having many credit cards won’t necessarily hurt your credit score significantly if you handle them responsibly. However, if you need to cancel a card, do your best to reduce all of your credit card balances first (preferably to $0), so that you can minimize or completely avoid any damage to your credit score. A cancelled card will remain on your reports for up to seven years (if negative) or about 10 years (if positive). While the account is on your reports, the average age of your credit will be considered. FICO itself confirms that “the FICO score considers the age of the accounts opened and closed.
Hi, I am Nikesh Mehta owner and writer of this site.
I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business.