Closing Credit Cards: When Should You Do It

Cutting Cards

You’ve gotten a new credit card and are looking to get rid of the old one that’s been with you since the dawn of time. Sure, you’ve had some good times together. After all if it wasn’t for your trusty credit card you wouldn’t have been able to pay for all those dates to impress your now wife or purchase that rug that really ties your living room together. So the question is… should you really be parting ways with your credit card just because it’s showing its age?

The answer is…. it depends. First ask yourself why? Why are you planning on closing your credit card? You should think twice before closing any old credit cards just “because they are old.” Positive revolving credit is a huge factor when building your credit score. If you’re looking to make the split with a card make sure you have good reason. If you are still using the card consider keeping it alive and well. Length of credit history makes up 15% of your FICO score. In this case, your old credit card might be your best source of positive credit.

When closing an old account your credit utilization ratio will remain at zero, making it hard to help your score out. If this credit karma study has taught us anything, it’s that your utilization should remain somewhere between 1%-20%.

Avg Credit Utilization Ratio (Source
Avg Credit Utilization Ratio (Source

Another factor for determining your score is the number of accounts. Getting a new credit card doesn’t mean you should close an old one. Having only one revolving tradeline opened at a time places all of your utilization on the single card. Try to keep a few cards active and remain below 20% of the credit limit.

If you are applying (or planning to apply) for a loan you should wait until after your application process to close any credit card accounts. The drop in score you get from closing an account may affect your ability to get approved, especially if you are just above qualifying range.

When Should I Close My Credit Cards?

Ideally you would want to close your credit cards when you are slammed with high interest rates, stuck with annual fees or trying to get out of debt. When an individual with bad credit is approved for a credit card, they are usually met with super-high interest rates. Maybe this was you a few years ago and now your credit is exceptional. Before swapping your card out for a new one, ask your credit card company if they can lower your interest rate. If not, then do away with them. Having good enough credit will get you approved for another card with better interest.

Annual fees are another pain. If your card has been collecting dust for months and you’re still paying the annual fee, consider closing it. There’s plenty of other cards out there that can collect dust with no annual fee (but in all seriousness, use your cards regularly as it will be beneficial to your score.)

According to NerdWallet, the average US household credit card debt stands at $15,706. That’s a pretty big amount of debt. One of the quickest ways to get out of debt is with the use of balance transfer cards. Balance transfer cards do exactly what their name entails. They allow you to transfer the balance from one credit card to another and make interest-free payments for a set time frame. You will be surprised how quickly you can pay off your debt when you aren’t paying the interest. If you feel trapped by your debt, check out our Get Out Of Credit Card Debt blog post Here.

What to Know Before Closing Credit Cards

You’ve made the decision, it’s time to let go and move on, but before you do make sure you prepare yourself for what’s coming!

Your Credit Will Be Effected

As stated above, after closing accounts your credit score will most likely drop. Consider closing the newer accounts before the older ones as older accounts hold more weight when determining your score. Once the account is closed your payment information will remain on your report for years to come. Positive payment info can remain for up to 10 years on your report (This is a good thing.) Whereas negative payment info can last up to 7 years.

Satisfy Your Balance/Redeem Rewards

Most (but not all) credit card companies won’t close accounts until your balance is at zero. Find what your credit card company allows. It’s always better to pay the account off first before closing. If you don’t think you can pay the account off, consider 0% balance transfer cards as previously mentioned.

If your credit card gives out rewards, make sure you redeem them before you close the account. If the account is closed before redeeming your rewards, you’ll most likely miss out on everything you’ve “earned.”

Closing Your Account

You’ve read the risks, you’ve satisfied the balance and you’ve redeemed your rewards. The time has come to put your card to rest (R.I.P.)

RIP Steve's Card

Contact your credit card company and break the news to them. Some companies will let you cancel online while others will require you to talk over the phone to a representative. Visit your credit card company’s website and/or give them a call to let them know you wish to close your account. Double check with the representative to ensure there’s no residual interest about to hit your account that you may need to pay. Too many times have I seen a situation where someone thinks they closed their account only to have it remain open and go derogatory.

Get Verification! This should go without saying. After you confirm your account as closed ask the representative to send you a verification email. Be patient, sometimes it can take a month for the account to close. Once you get verification of the closed account, check your report. Check your report on your credit monitoring service or go to a free credit report site like credit karma or credit sesame. Get in contact with the credit card company if your credit report is still reporting the account as open. If you don’t have credit monitoring, take advantage of our 3 months free offer here.

Need Help with Your Credit?

Afraid your credit might not be where it needs to? Can’t read your credit report? We know credit is confusing. That’s why we give out free credit consultations. We’ll take a look at your report and point you in the right direction. Fill out the form below and find out what you can do to better your credit score.