Sometimes we need to cancel our credit card. It may be because we don't trust ourselves around our plastic, our Mortgage assessment suggests we have too much credit, or any other reason. As with many things, there is a right way and a wrong way to do it.
Don't rush to cancel (unless you have to)
The first thing to consider when deciding if you really should cancel your credit card is whether you must do it. Unless you know (or have been advised) that a particular level of credit exposure is likely to prevent you from getting other products you desire, there are good reasons for maintaining your accounts.
One of the key indicators for credit worthiness is something lenders call 'utilisation'. Translated into English, this means the amount you have borrowed relative to your total available credit limit.
For example, a person with a £100 credit limit who had borrowed £10 would have a 10% utilisation rate.
Because of the way utilisation rate is calculated, if you cancel a credit card while maintaining a balance, your credit score could well decline, at least in the short term.
This is because your debt to available credit ratio (utilisation rate) increases.
To continue the example above; a person who cancelled a separate card with a £50 credit limit, but continued to borrow £10 from their existing card, would see their utilisation rate increase to 20% (because now they have borrowed £20 from an available credit of only £100).
If you're already using little of your available credit, this should not be a significant issue, but if cancelling a product is likely to regularly take you above a 50% utilisation rate you should reconsider.
Cancelling your credit account
Assuming you understand the risks involved with cancelling a card, and you're still keen to proceed, the next step is to check whether you have recurring payments which are made using the card that you must continue to make. If you do, you will need to change the card you used for payment.
Now you have prepared to close your account; the next step is to cancel your account.
There are two standard methods for doing this. Perhaps the quicker of the two is to call your card issuer directly and inform them that you wish to close your account. You can find UK card issuer telephone numbers here. Equally, if you prefer not to use the phone, you could write to your card issuer (at their customer service address), including your card number and address, to explain that you are reassessing your personal finance arrangements and no longer have a need for their card.
At this point, you might choose to cut up your card into many pieces. Try to cut through the numbers, the magnetic stripe and the chip in the card, and ideally, dispose of the different pieces in 2 separate bins, in different locations.
Once your bank has been informed of your decision to close your account, they will start to undertake their process for closing the account. This will start with them cancelling your card, so you will no longer be able to use your card for transacting.
After this, they will wait for a number of days to ensure that all transactions associated with your card have cleared. They will then prepare your final statement, including any money you owe. Ensure that this is paid fully by the due date and your account will be closed.
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