Most of us have weighed the pros and cons of closing a credit card. On the one hand, closing a card can help you eliminate service fees and keep your credit usage down. But, it can also lead to a drop in your overall credit score. It can be a complicated decision. That’s why we’ve outlined what closing a credit card really does to your credit. 

What closing a credit card means 

Closing a credit card means canceling the account with the card issuer. During this process, the issuing company may inquire as to why you are closing your account. And may even attempt to get you to keep the card. And while the perks offered might be tempting, if you do decide closing is in your best interest, it’s good to remember that “closing an account means it will be closed for good.” 

So what are some motivations for canceling a card? You no longer use the card, there was a rate increase, your credit score dropped, or you want to avoid hefty annual fees. 

A dip in credit

Given the motivation, closing an account might be your best option. But it’s important to note that closing can temporarily lead to a decrease in your FICO credit score. Two of the biggest scenarios where closing hurts your credit depends on how much credit you are using and the age of your card. If you’re using over 30% of your available credit, you could hurt your score––especially if you cancel a card with a high credit limit. The age of your card matters, too. “A card you’ve had for a long time helps your credit as long as you keep it open.” 

Is there a right way to close? 

If you’re still confused about whether closing is the right option for you, consider this: closing “depends on your credit profile and whether you tend to save or spend.” While deciding to close an account might make more sense overall, there are specific steps you should follow to do it correctly:

Step 1: Cancel automatic charges

Most of our payments today are automatic. Make sure you keep track of what gets charged to which card and transfer automatic charges to a new card before canceling your old one. 

Step 2: Pay off or transfer balance 

If you cannot pay off your card in full, “you can transfer the balance to another card, preferably one with a lower interest rate.” Like DEXSTA’s card options. 

Step 3: Redeem rewards

Some cards offer rewards as incentives for account holders (usually cashback or gift cards). When you close an account, though, you lose access to these, so make sure you use them up beforehand. 

Step 4: Confirm zero balance and request closure 

Lastly, make the call to your issuer to confirm that you have paid off your balance in full and to request the cancellation. Sometimes, even though you believe you’ve paid off your full balance there can be leftover daily interest charges, and failing to pay these can result in late payment charges down the road. When you’ve confirmed this, “get out your scissors and cut up the card, or put it in a shredder.” 

Building your good credit 

After closing, you might find that your credit score goes down temporarily. To boost your credit in the meantime, you can pay all of your bills on time, work on transferring balances and ultimately paying off your debt, be cautious when opening new accounts, and manage the credit cards you still have. When you are ready to open a new card, DEXSTA’s professionals are here to answer your questions and keep you on the path to good credit.