The cancellation of a credit card is part of the life of point & mile hunters. Before looking at the different steps to follow in order not to damage your credit report, you need to understand how the credit score works.
The credit score is calculated around five components:
Thus, when you cancel a credit card , you will impact several of these components.
Credit usage accounts for 30% in the calculation of your credit score. It is therefore a major component that can be impacted by the cancellation of a credit card.
Let’s say you only have 2 credit cards, each with a $5,000 limit, for a total available credit of $10,000:
Here, cancelling a credit card can therefore have a major impact on your credit report by destabilizing your usage ratio.
To counter this, it might be wise:
For people with many types of credit available (several credit cards, a mortgage, a personal loan…), cancelling a credit card is less of a problem since the impact on the usage ratio will be less.
Credit history counts for 15% in the calculation of your credit score.
This history will be calculated both at the level of your credit (credit card, mortgage, personal loan…) and on your entire credit report (since when information has been reported to the credit bureaus).
If the credit card you plan to cancel has several years of service, this can have a serious impact on your credit report. To counter this, it might be wise:
Again, for those who have had credit instruments for many years or have only had a credit card for one year, the impact on credit history will be minimal.
As well, be aware that the cancelled credit card will continue to appear on your credit report for 6 years.
Now that you have entered the two components impacted by the cancellation of a credit card, let’s look at the different steps to follow.
Do you have cash back or unused points on your credit card? You will need to use them before you cancel the credit card. Otherwise these rewards will be lost.
If you only have a few points left, you could use them to buy a gift card, for example: a quick and easy way.
But if you don’t want to use them, there are several solutions available to you:
Take the example of several popular rewards programs:
American Express Membership Rewards has 7 cards. Membership Rewards can be combined in a single “Membership Rewards” account when a card is cancelled. This allows you to keep your points in the event of card cancellation.
The most common case is to have applied for a Premium Card offering a high welcome bonus, such as the American Express Platinum Card®. After one or more years, you’ll eventually want to cancel it because you’re no longer taking sufficient advantage of benefits such as unlimited access to airport lounges, the $200 annual travel credit or the $200 annual dining credit.
At that point, you could opt for a Membership Rewards credit card with a lower annual fee, such as the American Express® Gold Rewards Card or the American Express Cobalt® Card.
Or even the no-annual-fee Membership Rewards Card: the American Express® Green Card.
For example, if you have points on your BMO Ascend World Elite Mastercard (part of the BMO Rewards program), it might be a good idea to sign up for another BMO Rewards credit card BEFORE you cancel your BMO Ascend World Elite Mastercard.
Simply call BMO and you can assign your credit cards to the same BMO Rewards account and keep your points in case of cancellation!
Those cards are part of the program:
At each monthly statement of your Aeroplan credit card, your earned points are automatically transferred to your Aeroplan account. You can cancel your Aeroplan credit card and keep your points in your Aeroplan account.
You can then apply for another Aeroplan credit card, which is subject to Aeroplan credit card application rules. Or a Membership Rewards credit card that allows you to transfer your points to Aeroplan).
For example, if you had the TD® Aeroplan® Visa Infinite* Card, you could opt for a Premium card such as the TD® Aeroplan® Visa Infinite Privilege* Credit Card or the American Express®* Aeroplan® Reserve Card. Or vice versa.
Check out the best Aeroplan credit card offers available today.
At each monthly statement of your Marriott Bonvoy credit card, your earned points are automatically transferred to your Marriott Bonvoy account. You can cancel your Marriott Bonvoy credit card and keep your points in your Marriott Bonvoy account.
You can then apply for another Marriott Bonvoy credit card (or a Membership Rewards credit card that allows you to transfer your points to Marriott Bonvoy).
Check out the best Marriott Bonvoy credit card offers available today.
It is recommended that you pay your credit card balance in full BEFORE you cancel.
You can always use the balance transfer technique to another credit card if necessary. Some credit cards have balance transfer offers that can go as low as 0% for several months.
Over the months or years of using your credit card, you have probably had to pre-authorize certain payments (cell phone or internet bills, gym membership, etc.).
So remember to cancel all these pre-authorized payments on your credit card BEFORE you cancel.
In some situations, these payments would continue to be charged to your credit card, which could unknowingly affect your credit report! Some people realize this several months later!
It is important to review the various purchases made on your credit card, especially those made in the last year (or the last two years for some cards).
In fact, you may have made purchases for which you could benefit from insurance!
This relates to:
And this last point about the extended warranty is often unknown.
For example, you may have bought a washing machine or an electronic appliance with your credit card. What happens if your appliance breaks after you have cancelled your credit card?
In some cases, keeping the credit card can serve as an insurance policy!
We’re thinking in particular of cards like the National Bank World Elite Mastercard®, which triples the warranty period on most of your purchases!
Once all these steps have been completed, it will then be time to contact your credit card issuer to cancel it.
Depending on the institution, several methods are available:
With some institutions such as American Express or HSBC, it is even possible to do so by chatting from your online account!
When requesting a cancellation, the advisor may make a retention offer by offering you points or a discount on the annual fee. It’s up to you to see the relevance of this offer to YOUR situation!
If you proceed with the cancellation, ask for confirmation that the cancellation was done ON REQUEST (and not as a result of a decision by the issuer).
And ask for a paper statement showing that your card is cancelled with a $0 balance.
Within 30 to 60 days, the cancellation of your credit card should be reported to the credit bureaus (Equifax and Transunion).
Feel free to check this with each credit bureau:
It may happen that this is not the case and the account is still marked as open. At that time, insist that the issuer update the information with the credit bureaus.
Cancelling a credit card is a well-established process: once you have cancelled your first credit card (and possibly learned from some of the mistakes you made), future cancellations will be easier!
For more information on this process, see this article on opening and closing credit cards.
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