Published in: Credit Cards | Jan. 2, 2020

5 Things to Do Before You Close a Credit Card

By:  Kailey Hagen

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Don't even think about canceling that card before you do these five things.

Canceling unused credit cards can free up room in your wallet and give identity thieves one less way to come after you, but it's not as simple as you might think. There are some loose ends you have to tie up before you cancel your card so you don't run into problems later. Make sure you do all of the five things listed below.

A woman at a desk looking at her computer and holding a credit card.

Image source: Getty Images

1. Understand the impact to your credit score

Closing a credit card will hurt your credit score because it will lower your credit utilization ratio. This is the ratio between the amount of credit you use each month and the amount you have available to you. You want a ratio that's 30% or less. Anything higher indicates that you require a lot of credit to sustain your lifestyle, which worries lenders. Closing a credit card could also reduce your average account age, another factor that plays into your credit score. This is especially true if you’ve had the card for a long time.

Think carefully before closing a credit card if doing so would raise your credit utilization ratio to more than 30%. If the card does not charge you an annual fee, you may be better off leaving it open. But if it does, you'll need to charge less to your remaining credit cards when you cancel it. You should also spread your spending around among your cards to ensure that you don't exceed 30% of your credit limit on any single card.

2. Pay off your balance

Those who have an outstanding balance should strive to pay it off before they close the card if they'd like to be rid of the debt for good. Technically, you don't have to pay off your balance to close the card, but you'll still be responsible for paying back the debt even though you're no longer a cardholder, and your balance will still accrue interest at the same rate as before. 

Consider a balance transfer card if you cannot afford to pay off the debt right away but would still like to get rid of the card. You'll pay a fee, usually a percentage of the balance, to complete the transfer, but then your balance will not accrue interest for the introductory period, which can be anywhere from six to 21 months, depending on the card. This will enable you to pay back what you owe more quickly.

3. Use up any rewards

Although you'll still owe your outstanding balance after canceling a credit card, card issuers aren't kind enough to let you keep your credit card rewards. Unless you have another card with the same issuer that you're holding onto, you need to use up all of your credit card rewards before you cancel your card. 

Check your online account or your latest credit card bill to see how many rewards you currently have and review your redemption options. Some cards will enable you to use your rewards to reduce your next credit card bill if you can't find anything else you like.

4. Let authorized users know

You must notify any authorized users of your intention to cancel your credit card. Otherwise, they might attempt to make purchases, only to have the card declined. Reach out to them and let them know when you plan to cancel the card so that they can plan appropriately for upcoming expenses.

5. Switch repeating payments over to another card

Comb through your credit card statements for the past year and look for automatic payments on that card. If any of them are scheduled to repeat, you must switch them over to another credit card. Failing to do so could result in interruption of service and undeserved late fees. 

Make a list of all automatic payments and then log into your online account for each one or contact the company by phone to update your credit card information. Doing this before you cancel your old credit card is the best way to prevent issues.

Following the above steps might seem like a bit of a hassle, but it's nothing next to the problems you might have to deal with if you skip them. But if you think canceling your card is the right thing to do, make sure that you first set aside a half-hour or so to do the five things listed above.

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