7 things to know before cancelling your credit card

Feb 10, 2020

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Credit cards can be a very attractive offer to new customers, but over time, their value proposition may change. The annual fee may increase, the earning rate decrease or travel benefits may be removed. Alternatively, your spending habits may change, rendering a card you used to use all the time less valuable.

Related: The best U.K. miles and points credit cards of 2020

Here are some things to keep in mind before cancelling a card.

1. Your balance must be paid or transferred

If you have a balance payable on the card, you must pay all amounts owing on the card before it can be cancelled. You can either do this in advance of calling up to cancel the card, or provide bank or debit card details over the phone as you cancel it.

You may also be considering a balance transfer over to a new card, which would reduce the balance on the card you are cancelling down to zero, too.

2. Your Annual Fee may be partly refundable

Some people cancel their cards just before the next annual fee is due, as they do not want to pay a full year’s fee for a card they are not planning to use. However, if your annual fee has already been charged, you can enquire about the possibility of a pro-rata refund. American Express U.K. should provide a pro-rata refund in these circumstances. For example, if you cancel the card six months after the annual fee is charged, you should receive half the annual fee back as half the year remains.

(Photo by Liam Spencer/The Points Guy)
(Photo by Liam Spencer/The Points Guy)

3. Direct Debits will be cancelled

If that gym membership or rental payment is made by direct debit each month from the card in question, it won’t be after you cancel it. You will need to remember to set up direct debits through other cards or accounts to avoid overdue fees or your pin number no longer working at your next gym workout.

Related: Why keeping an additional credit card for emergencies did me more harm than good

4. You may retain some benefits

This will differ from card to card and benefit to benefit, but you may be able to keep some of the benefits even after the card is cancelled. Things like elite statuses that come complimentary with the card should remain for the rest of the membership year, even if you cancel the card that granted it.

Travel insurance offered with the card may lapse as soon as you cancel the card, as one of the requirements for making a claim may be having an active card. Consider any upcoming travel you may have booked where you were planning to rely on the card’s travel benefits.

5. You’ll probably lose this month’s points

Where the points you earn sweep monthly into an associated loyalty account, you may lose any unswept points if you cancel the card before the end of a normal statement period. If the card is not active, then the mechanism to send the points from the card to an associated mileage account may also become inactive.

For this reason, you may wish to diarise the day of the month your points usually sweep and cancel the day after that to ensure you don’t lose those points. You will still be able to use the points that have swept to your account in the previous statement period.

Related: How do you determine the value of the points and miles you have?

(Image by The Points Guy)

6. It may not actually affect your credit score

If you are cancelling a card because you have your eye on another card and think it will help your chances of being approved, it may not. If the new card is from the same card issuer and they have restrictions related to previous card ownership then you may need to cancel one of their old cards to be approved for a new card.

However, if the new card is unrelated to the old card (such as being from different card issuers), then the card issuer will look more closely at how you have serviced credit in the past (such as an absence of defaults) than which cards you have recently cancelled. That being said, issuers can look at things differently and your credit score may indeed be affected.

7. The card issuer may entice you to stay

You’ll usually need to call up to cancel the card. You will likely be asked for a reason as to why you are choosing to cancel and don’t hesitate to tell them the exact reason. If the annual fee is too expensive or the benefits recently ‘enhanced’ in a negative way, then tell them that. They may simply make a note on the file and cancel the card in accordance with your wishes immediately. But you never know — in some cases, if you have enjoyed a long and mutually beneficial relationship with the card issuer, they may offer you something to stay — a waived annual fee, some bonus points or more.

If they ask you to reconsider, ask them how they can change your mind about cancelling.

Related: Why your family should never hoard your points and miles

Bottom line

There’s quite a lot to think about when it comes to cancelling a credit card. Like closing a bank account, it can be time-consuming when you consider the different benefits and obligations tied to the card. You should plan any card closures like you would plan a card application.

Featured photo by Liam Spencer/The Points Guy.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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