There are lots of good reasons to close a credit card: you have too many credit cards, your card issuer raised your interest rate or added an annual fee, or because you don't want that credit card anymore. Leaving credit cards open is often the best for your credit, but if you've settled on closing your credit card, here's the right way to do it.
Consider Whether It Will Impact Your Credit Score
Before calling your credit card issuer to have your credit card closed, consider whether closing that card will impact your credit score. Closing a credit card doesn't remove it from your credit report, nor does it remove any associated payment history from your credit report. So if you were hoping you could close your credit card to make the credit bureaus "forget" that you were late, you're out of luck. Any negative payment history will stick around for seven years.
At least bring your account back into good standing, so that the positive payment status can be factored into your credit score. If you later decide to close the account, it will stay as an account closed in good standing on your credit report for about 10 years. If you close your account with a past due balance, it will fall off after seven years.
However, it's important to consider the age of the credit card because the length of your payment history is important in maintaining a solid credit score. If you close a card that's been opened for many years and keep cards that you've had for only a year or so, you might see a dip in your credit score. Lenders want to see a consistent track record of maintaining a good relationship with creditors.
Also, if you've had late payments recently on the card, you might want to keep it open for some time with a zero balance to show recent positive credit history with the card.
Pay off Your Credit Card Balance
You can close a credit card even if you still have a balance, but your credit score may suffer because your credit utilization will appear higher. Credit utilization considers the ratio of your credit limits to credit card balances and is part of the second biggest factor that goes into your credit score.
When you close your credit card with a balance, you'll still have to make regular monthly payments (at least the minimum) until you've paid off the balance. If possible, be sure to pay off the balance on the credit card before you close it since it will lessen the impact on your credit score.
When you pay off the card and close it, you will no longer have that credit limit boosting your credit utilization. In other words, if you close a card after paying it off—and your other cards have balances close to their credit limits—your overall credit utilization will rise. You want to have credit available on each card, showing creditors that you're not maxing out your accounts, which would make you a credit risk and lower your score.
If you can't afford to pay off your balance and you're eager to close the credit card, consider transferring the balance to another credit card. A credit card without any used credit or one with a promotional interest rate is good candidates for a balance transfer.
Use up Your Credit Card Rewards
When you close your credit card, you won't be able to use any of the rewards you've worked so hard to earn. Before you close your card, check your rewards balance to see how many rewards you have outstanding. Redeeming your rewards as a statement credit can reduce your outstanding balance. Of course, if you haven't met the redemption threshold, you may have to accept losing the rewards, which can happen if your credit card issuer requires you to redeem your rewards in increments of $25, and you only have $15 in built-up rewards.
Contact Your Credit Card Issuer's Customer Service
Call your credit card's customer service using the phone number on the back of your credit card. Let the representative know that you'd like to close your credit card account. Don't be surprised if the representative tries to talk you into keeping your account open. For example, they may offer to lower your interest rate or enroll you in a rewards program as an incentive. If you're sure you want to close the account, don't allow yourself to be convinced otherwise. Note the date and time you made the request.
Follow up in Writing
Follow up with a letter to your credit card issuer so that you have a record of the request to have your credit card closed. Include your name, address, and credit card number (or at least the last four digits of the card number). State that you requested by phone to have your account closed and note the date of the request. Send your letter via certified mail, so you have proof that the letter was mailed and received should that fact ever come into question. Keep a copy of the letter and the certified mail receipt for your records.
Your credit card issuer will usually close your credit card even if you don't follow up with a letter. Sending a letter gives you proof that you requested to have your account closed if it ever comes into question in the future.
Check to Be Sure Your Account Is Closed
In a few weeks, check your credit report to make sure the credit card is reported as closed by you. You can check your credit report for free by going to AnnualCreditReport.com or by using a free service like Credit Karma, Credit Sesame, or WalletHub.
It won't necessarily hurt your credit score if it's not reported as closed or if it's reported as closed by your credit card issuer. Still, you want your credit report to reflect the status of your account accurately. Contact your credit card issuer or file a dispute with the credit bureau if your credit card account isn't reported as closed.