6 Things You Should Know Before Canceling a Credit Card

You’re cleaning out your wallet or purse and you just found a credit card that you no longer use. You think to yourself that you should cancel it immediately because it’s obviously of no value to you any more. However, there are a few things you should know before you dump that card.

1. You’ll Hurt Your Credit Score

Believe it or not, cancelling a credit card could actually hurt your credit score. That’s because your credit score is based, in part, on the amount of debt you’re managing responsibly. If you lower that amount of debt available to you, then you could see a drop in your score.

Consider hanging on to the card and never using it. Then, when you go to visit one of the many credit score estimators, you won’t see a drop in your score because you cancelled an old card.

2. You Can Negotiate with Your Lender

Before you cancel that card, consider calling the credit card company’s customer service department and ask about incentives to keep the card. Just tell the rep on the other end of the phone the truth: that you were cleaning out your purse and found the card. You no longer use it, and you’re thinking about canceling it. Ask the rep if there are any benefits that you’re entitled to if you decide to stay with the card after all.

You might be offered some points or frequent flyer miles in exchange for not cancelling the card. You also might be offered further incentives if you use the card to make purchases within the next couple of months.

3. You Can Downgrade the Card at No Cost

Instead of cancelling the card outright, you might be able to downgrade it. The beautiful thing about downgrading a card instead of cancelling it is that your credit score is likely to stay the same and you should be able to keep any rewards you’ve already earned.

4. You Might Lose Your Rewards Points

If you used that card quite a bit before you lost track of it, you might have earned some rewards. The rewards plans for different credit cards vary wildly, so it might be a good idea to check if you’ll lose those rewards if you cancel the card.

5. You Might Have Some Fee Credits

You might have earned yourself some fee credits when you used that card once upon a time. For example, you might have baggage fees or incidental fees associated with airlines covered. Again, make sure you don’t lose those fee credits when you cancel or just use them before you cancel.

6. You Might Have Auto-Bill Payments on the Card

Even if you don’t use the card when you’re shopping at your favorite retail outlet, you might have made an arrangement to use that card to pay a bill every month. Then, you arranged for the card payment to be handled every month with an automatic draft from your checking account. Just make sure that you’re not going to be late with a payment when you cancel the card.

Cancelling a credit card, especially if it’s a department store credit card that you never use any more, might seem like an easy decision. However, it’s still best to exercise some due diligence before making the call to cancel it.