Closing a Credit Card: When You Should and Shouldn’t Close an Account
A credit card is a financial tool, and just like any broken hammer or dull saw blade, a credit card might outlive its usefulness. There are a variety of reasons why you should get rid of a specific credit card, and some reasons to keep it even if you don’t really use it too often. Knowing when to close a credit card account is an important financial decision that can help manage your credit score and keep your money safe.
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Can You Close a Credit Card?
Yes, it is possible to close a credit card. In order to successfully close a credit card, there are a few things that need to be done first. The biggest is that any debts incurred from the credit card should be paid off. You may face late fees or delinquency if you try to close a credit card that has outstanding charges on it.
If you’ve paid off any charges on your credit card, you are free to close it. Contact your credit card provider to close any account you have with them. Some may allow you to close an account online, but many will require a phone call or written letter. Even after you close the account, follow up to make sure it’s been properly done.
Should You Close a Credit Card?
Not all credit cards are created equal, and sometimes having the wrong one can do more harm than good. Depending on your situation, certain credit cards just don’t make sense. These are the cards that you probably should consider closing. Another reason behind closing credit cards is if you are struggling to use them responsibly. If overuse of credit cards is putting you in debt and hurting your credit, get them paid off and then consider getting rid of them.
When You Should Close a Credit Card
Monthly or Annual Fees
The biggest sign you need to close a credit card is if it is actively hurting your finances. The most common way a credit card can be detrimental is if it has a monthly or annual fee, and money is tight. If simply having a credit card is draining your wallet, and you don’t get your money’s worth out of the benefits, get rid of it. Similarly, if you have multiple credit cards that have monthly fees, consider closing the ones that cost the most or bring the least amount of benefits.
Bad Spending Habits
Another reason to close a credit card is if you’ve lost control of the account and getting a new card just isn’t enough to regain control. This could happen if your identity was stolen or your account is breached. Closing the account could prevent more harm from being done, just be sure to report it to both the credit card company and credit bureaus that the activity on the card isn’t you. Similarly, if you have an account that just keeps getting breached or stolen, canceling it might be in your best interest to stay protected.
Too Many Cards to Keep Track Of
If you just can’t be trusted with credit cards, then you really should consider closing them. Don’t wreck your credit score and end up putting yourself into debt just because you overspend with credit cards. In a similar situation, if you are opening new credit cards, using them a few times, then forgetting about them until after the bill is due, consider paying those off and closing them, to prevent forgetting about payments you need to make.
When You Shouldn’t Close a Credit Card
If your situation doesn’t match those listed above, you probably aren’t needing to close your credit cards. Even if you barely use credit cards, simply having that line of credit open can help build your credit score.
You Have Unused Rewards Points or Miles
There are some definite scenarios when you shouldn’t close a credit card. The biggest of these is if you have unused “points” or rewards attached to your credit card. If you close a credit card filled to the brim with travel points or cashback rewards, you’ll lose all of them. Use those up before you close the card.
You Don’t Have a Replacement Credit Card
Another reason not to close your card is if it’s your only credit card, and you aren’t planning on getting a new one. Credit cards are very useful in building your credit, as you can use them month-after-month and they report to credit bureaus. At least have one open at all times so you can keep growing your credit score. It’s possible to switch credit cards if you want to, so you make sure you always have one open.
You Just Want a Different Card
If you are wanting to close a credit card because you have others on the account you want to remove, you don’t need to cancel. Many credit card companies will work with you to get you a new card without other authorized users, meaning you don’t need to close the account completely.
If you are smart about it, credit cards can be an invaluable tool in your finance toolbelt. Only cancel them when you absolutely need to. Otherwise, keep up on your payments, be smart about opening new cards, and build your credit score.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated July 19, 2018. It was originally published June 12, 2018.