How to Close a Credit Card Account Smoothly and Effectively

At O1ne Mortgage, we prioritize your financial well-being and aim to provide you with the best advice to manage your credit and finances. If you’re considering closing a credit card account, it’s crucial to ensure the process is handled correctly to avoid any negative impact on your credit score. Here, we outline the steps you should take to close a credit card account smoothly and effectively.

Should You Close a Credit Card?

Closing a credit card might be the right decision if you’ve struggled with overspending or if the card’s annual fee outweighs its benefits. In some cases, secured credit cards may require you to close your account to retrieve your security deposit. However, it’s important to note that closing a credit card can negatively affect your credit score, especially if it’s your oldest account. The loss of available credit can increase your credit utilization rate, and while the account history will remain on your credit reports for up to 10 years, closing it will halt positive contributions to your credit score.

Therefore, it’s essential to weigh the pros and cons of canceling a credit card versus keeping it open.

1. Pay Off Any Balance

While you can technically close a credit card with an outstanding balance, interest and fees may continue to accrue until the balance is paid off. Additionally, your credit utilization rate—calculated as your balance divided by your available credit—may spike because you’ll still have the balance but not the available credit. To avoid this, ensure you pay off your balance and check for any pending transactions before contacting your card issuer.

2. Redeem or Transfer Rewards

In most cases, canceling a credit card results in forfeiting any unredeemed rewards. Some credit card companies may offer a grace period, but it’s generally better to redeem all your cash back, points, or miles—or transfer them to another rewards program if possible—before closing your account. Also, check for any pending rewards from your most recent statement cycle.

An exception to this rule is if you have an airline or hotel credit card. In these instances, you earn points or miles directly with the partner airline or hotel loyalty program. These rewards are subject to the program’s expiration policy and aren’t affected by your credit card’s status.

3. Transfer Recurring Payments to a New Card

If you use your current card for utilities, subscriptions, insurance premiums, or other recurring transactions, switch these payments to a new credit card or another payment method. Once your account is closed, new recurring payments will typically be declined, which could result in late payment fees or canceled services.

4. Contact Your Credit Card Issuer

Once you’ve ensured your account is ready for cancellation, reach out to your credit card issuer to submit your request. Depending on the issuer, you may be able to do this over the phone (call the number on the back of your card), through a secure message in your online account, or via live chat.

You may be asked to provide a reason for the cancellation, and in some cases, the issuer may offer an incentive to keep the account open, such as bonus rewards if you meet a certain spending threshold. If you still wish to proceed, politely decline the offer and ask the representative to complete the request and provide a confirmation.

5. Destroy Your Old Card

To ensure no one gains access to your card or personal information, shred your credit card after it’s been canceled. If the card is made of metal, ask the credit card company to send an envelope, which you can return with the card for the issuer to destroy.

6. Check Your Credit Report

Even after receiving confirmation from the credit card issuer, monitor your credit report until you see that the account has been reported as closed. Also, ensure the account is marked as closed by the cardholder, not by the issuer. If the account is marked as closed by the issuer, future creditors might get the wrong impression when reviewing your credit reports. If the information is inaccurate, you have the right to file a dispute with the credit bureaus or contact the credit card company directly.

The Bottom Line

Closing a credit card account can potentially impact your credit score negatively, but it may be the right move if it helps improve your financial health. Take your time to consider all your options, then follow these steps to ensure you don’t lose your rewards or have to continue dealing with a balance.

If you’re thinking about replacing the card with a new one, O1ne Mortgage can help you find the best credit card offers based on your credit profile, allowing you to compare options side by side. For any mortgage service needs, call us at 213-732-3074. Our team is here to assist you with all your financial needs and ensure you make the best decisions for your future.