How to cancel a credit card

By Emma Lunn

You know the general rule -- closing credit cards with a long, healthy history can hurt your credit rating. Yet there are some instances when cancelling a card can be a good choice --  if you have an expensive rewards card you never use, for example, or if you opened a store card on an impulse.

Yet cancelling a card isn't as simple as cutting it up. Here's how to make sure that card is out of your life for good.

Scissors are not enough
By cutting up the card, you are merely preventing future use of the card itself for use on any transactions. Even if you have a zero balance, the account will still be deemed an open line of credit associated with you -- and the credit card number will still be "live" and usable for online purchases. cancelling-a-credit-card

"Simply stopping using your card or cutting it up will not automatically close your credit card account, although some banks may write to you to advise that they will close your account if you haven't used it for a long time," says Jonathan Akerman, spokesman for Santander. "Always make sure your last statement is paid off in full and then write or call your credit card provider to confirm you wish to close your card account."

Owen Roberts, head of Callcredit Check, also suggests phoning your credit card provider directly.

"However, they will insist that you also put your request in writing, too, for security purposes, Roberts says. "For many online banking providers, this can be by way of an email. Most do have secure email facilities for you to do this."

Make a clean break
Before you cancel your card, you need to make sure the balance, interest and any other charges on the account are paid off or have been transferred to another card via a balance transfer. You won't be able to cancel a credit card if you owe the provider money. You also need to make sure there are no pending transactions, such as a purchase or continuous payment authority (a regular automatic charge you've authorised to pay for a monthly subscription, for example).

When to cancel a credit card
In general, closing a long-held card that has a history of on-time payments can decrease your credit utilisation ratio and damage your score. Yet, if you have a credit card with a zero balance that you no longer use (and never intend to use again), it can be a good idea to cancel it rather than leave it open.

In fact, if you have many inactive cards, closing some of them could even lift your credit score and make it easier to get credit in the future. That's because having too many open credit cards can signal to lenders that you have the potential to get deep into debt, Roberts says, making them wary of doing business with you.

 "You should only keep the account open if you intend to use it," Roberts says. "Don't just leave it dormant. You should consider closing the account if you no longer have use for it or if you haven't used it for some time. A common mistake made by many consumers is when they have open store card accounts which they no longer use but leave them open." The only caveat is to not cancel multiple cards all at once, if possible. Space out the cancellations over several months in order to prevent any huge hit to your credit score.

Other benefits of cutting off a card
Closing inactive accounts will minimise the risk of fraud. If you have an open account that you are no longer monitoring, thieves could get your card information -- and use it to make purchases without you noticing.

Another benefit?  After a period of time, you can return to that particular credit card company as a new, rather than existing, customer. Card companies often offer their best deals and introductory offers to new customers to lure them in. So, the next time you need a credit card, you'll have access to all the best deals.

Look before you leap
Before you cancel a credit card, ask yourself what you would do if you had an emergency. If you don't have instant access to cash -- such as emergency savings or another credit card -- it might be a good idea to leave a credit card account open in case you need it.

Also keep in mind that you could be losing some important consumer protections. Credit cards are better than debit cards for big purchases, as you receive extra protection under Section 75 of the Consumer Credit Act of 1974. So it's often a good idea to buy more expensive items on your credit card for the extra protection and then pay off the balance before it incurs interest.

See related: Being too credit shy can backfire, Why I live without credit cards

Published: 3 May 2012