The Frugal Creditnista

How to Close Your Credit Card without Tanking Your Credit Scores

If you’ve ever read any credit advice, one of the main tips to improving your credit scores is NOT to close your oldest accounts.

The age of our credit history accounts for up to 15% of our credit scores, and although that seems small, that 15% can make all the difference in soaring your scores into the 800s, if all other factors are positive (i.e. payment history, utilization, etc.).

The decision to close a credit card, however, should rely on more than just your credit scores. For example, a trend that I’ve seen over the years, are consumers holding on to sub-prime, high interest rate, high annual fee cards, with the notion that their scores will decrease if they close them. These type of cards will very rarely reduce their interest rates or annual fees by much, no matter how well you've maintained your account over time.

You may ask “Why would someone obtain those cards in the first place?” The answer is that if your credit scores are low or are tarnished with poor payment history, you have to start somewhere to begin the rebuilding process. Once you’ve rebuilt, however, it’s time to break-up and move on.

“Some credit cards need and should be closed, especially if they are impacting your cashflow on a month-to-month/annual basis” ~ The Frugal CrediTnista

One such card is First Premier. The interest rates start at 36%, with annual fees ranging from $75 – $124.99 AND a monthly service fee. Come on now… this card has got to go! I actually have clients who’ve had this card for 4+ years and are scared to close it due to age.

Let’s talk about how to close cards, such as this one, without tanking your credit scores.

1.  Write down your credit scores, you want to see what fluctuations happen, if any, before and after the card has been closed.

2.  Stop making charges to the account. Sounds simple, but I can’t count how many times I’ve had people still swiping the card they know they want to close. Stop It.

3.  Calculate your debt-to-credit utilization ratio.
Our credit utilization makes up to 30% of our credit scores. Closing an account could greatly impact this area of our credit scores, so we want to take the time to tackle this area first.

Assignment: Add up all of your credit card balances, then add up all of your credit card limits. Divide your total credit card balances by the total credit card limits. The answer will be your utilization. Then recalculate omitting the credit card you’d like to cancel.

Here’s an example:
Capital One – Limit: $5000 Balance: $400
Discover – Limit: $2500 Balance: $0
Chase Visa – Limit: $1500 Balance: $1000
First Premier – Limit: $4000 Balance: $200

Total Balance: $1600 Total Limit: $13,000
Credit Utilization – $1600/$13000 = 12%

Recalculate, omitting the credit card you’d like to cancel:
Capital One – Limit: $5000 Balance: $400
Discover – Limit: $2500 Balance: 0
Chase Visa – Limit: $1500 Balance: $1000
First Premier – Limit: $4000 Balance: $200

Total Balance: $1600 Total Limit: $9,000
Credit Utilization – $1600/$9,000 = 17.8%

Not too bad, huh? Notice I still included the $200 balance on the First Premier credit card, if the balance is not $0; you’d do the same thing. That balance will still factor into your utilization because it’s an Amount Owed on the account.

4.  If possible, pay off the balance on the account you want to close. Why? Because it’s still being factored into your utilization, of course!  A credit card isn’t completely closed until the balance has been paid off. Further, when a company closes your credit card, they will sometimes remove the credit limit on the account that's reporting on your credit reports.  This makes report more negatively than it really is.  The best way to buffer any reduction in your credit score, is to pay it to $0 prior to closing.

I actually work with my clients on paying down ALL BALANCES to as close to $0 as possible. If your balances are at or near $0, you really won’t notice any fluctuations in your credit scores because your utilization will be amazing regardless .

If paying all of your accounts to $0 is not in the cards for you (pun intended, lol), consider calling your other credit card providers and requesting a credit limit increase.

NOTE: CONFIRM the account is showing $0 with the credit card company prior to closing. There may be additional finance charges that have accrued between the end of the previous billing cycle and when you’ve paid it off.

5.  Redeem any rewards.  This is a step that a lot of people forget. If you are closing a card with cash back, point, or travel rewards, redeem them prior to closing. With some cards, if you close the account, you lose the rewards. So, check your reward balance on your account online and redeem them per the instructions listed. If you are closing a card with travel miles, check or call to see if you can redeem them for a statement credit. In most cases, this step is best completed by chatting with a representative, you will not close the account, nor will you tell them of your intention to close the account, until you have found out how to redeem your rewards, and the method for redemption has gone through. Take notes and write down whom you’ve spoken with and what was agreed upon.

6.  Call and Cancel! Confirm the balance is at $0 and no residual interest, fees, or charges are pending or will be posted to the account. Confirm that the rewards you’ve accumulated have been redeemed according to your previous conversation.

Be prepared to hear all types of reasons why you shouldn’t cancel, – your credit scores will tank, promotions you’re eligible for, etc. – stand firm.

Ask for the name/address that you can write your request in to. Take note of the name/department, address, representative’s name, date/time/summary of conversation.

7.  Backup your request in writing. It’s always good to have a paper trail. Write a short letter of your desire to have the account closed, include your name as it appears on the account, the address associated with the account, your telephone number, your account number, and details of the call you had during your initial phone cancellation. Keep a copy for your records and mail off certified mail (return receipt is optional, you can go online and copy date of delivery/receipt if you wish or pay for an email confirmation, which is cheaper than return receipt).

8.  Confirm closure. You should receive a copy of the cancellation directly from the credit card company. This can take a few weeks. At this time, review your credit reports to ensure the account balance is $0, the payment status says ‘paid in full’, and the account remarks state ‘closed at consumer’s request’.

If the account is still open, repeat steps 6-8.  I only repeat ONCE, after that it’s time to file a complaint with the Consumer Financial Protection Bureau and the Better Business Bureau.

9. Cut the card up prior to tossing.

10.  Review your credit scores over the next 60 days to see if there are any fluctuations.

Common Questions:

Will the account remain on my credit report?
YES! And as long as it has good payment history you want it to stay there. The payment history will continue to be factored into your scores 10 years from the date you closed it. This is a good thing; payment history makes up 35% of our FICO scores. If the account has negative information associated with it, it will be removed 7 years from the date of the original delinquency (the date the account first became late and you never brought it current again).

Will the closed account reduce my Age?
As we discussed, the length of our credit history makes up 15% of our scores. If you close a credit card account, the age should not affect you immediately.

If the account was closed positively (meaning it’s not a charge-off or was in a derogatory status), it will remain on your report 10 years from the date of closure. So, for 10 years the account will be factored into your age and payment history.

However, FICO also measures risk, which is what our credit scores are. Everything in our credit history is closely related to each other and is taken into consideration when determining our credit scores. This means that one person may close their credit cards and be considered high risk and their scores may experience a drop; while another will be considered a low risk and not see a reduction in their credit scores at all. Ultimately, however, the age and payment history will still be considered when calculating our overall credit scores for 10 years. The effects of a closure is waaaay shorter than that, so any points lost should be regained relatively quickly.

I’m purchasing a home soon, should I still close my credit card?
I would hold off, especially if you’ve been pre-approved already.

My credit monitoring report says I have too many open cards, is this a good reason to close a credit card?
No. There is no such thing as ‘too many credit cards’ when it comes to credit scoring. If you can manage them properly and aren’t charging them up like crazy, you’re good to go. Keep them.

Further, for most credit monitoring sites, the “too many revolving accounts” message applies to both open and closed credit cards, so closing won’t make this message go away. It typically means you don’t have any or very few (usually only one) installment account reporting on your credit reports.

I’m interested in applying for a new card with a better interest rate and rewards, should I close my credit card first and then apply?
I’d apply for the new card first and then close the account. If there are any slight variations in your scores, you don’t want that to impact your approval decision or the interest rate that you are approved at.

I keep charging to my cards and am having a hard time stopping, is this a good reason to close it?
In theory, yes, however this is also credit score suicide. Instead of closing, cut them up. To maintain your credit scores, select a bill(s) that you can charge to your card(s) each month and set up auto-payments either with your bank or your credit card provider. Make sure the bill is less than 20% of your total credit limit.

Should I reduce my credit limit versus closing my credit card?
Run the numbers first.  Reducing in your credit limit can negatively impact your utilization big time.  You want to run the credit to debt utilization in step #2 before enacting this option, as it can be a huge credit score killer.  Utilization, after all, makes up a whopping 30% of our FICO scores.

I have a few sub-prime cards that I want to get rid of, can I close them all at once?
I would make sure all of your cards are at $0 first, then start closing them one at a time, waiting a few months in between. If you follow my 9 steps above, you can see if/how your scores fluctuate with each closure.

How much will my scores change if I close my credit card?
Who knows! Everyone’s credit history is completely different, one person may experience a decrease and another person won’t. Credit scoring is unique to each individual’s credit data.Hope this helps!

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3 Responses

  1. Citibank was my very first credit card (obtained as an undergraduate freshman 10 years ago). Every 6 months for the last several years I have asked for a credit line increase and it has gone up quite a bit. I don’t use it though and the credit line is half that of my travel rewards card. I really want to close the Citibank card in favor of a cash back rewards card. I have no balances on any of my credit cards (1 store card, 1 travel card, 1 healthcare financing card, and the Citibank card). Is Citibank considered a starter card? I can’t decide if I should just open a new card and close this one, or open a new card and keep this one open too.

    1. Citi is an AWESOME card; and is definitely not a starter card. I’d call to see if you can upgrade the card to a cash rewards one

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