1. Make sure you're canceling for the right reason

Picture showing pretty woman shopping online with credit card
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Cancel a card if you can't control yourself with it.

First, identify the reason for cancelling your credit card. You may want to start fresh if:

  • Your debt is unmanageable and you can’t resist the temptation to spend
  • The card has a high interest rate and you've found one with 0% APR
  • The card’s annual fee is taking a big bite out of your income
  • The card’s rewards program has changed or expired
  • The card’s fees have increased

If none of the above apply, you may be better off leaving your card open. You can also decide to minimize your usage to continue building good credit. After all, cancelling your credit card could hurt your credit score in more ways than one.

It’s important to note that if you have multiple credit cards, closing one and moving the debt onto other cards may not help.

Every credit card has a credit utilization rate. This is the percentage of the card’s maximum credit remaining each month. Banks typically like to see no more than 30% of your maximum credit spent per month, but a 1% to 5% spend is ideal.

If you move existing debt from one card to another you’ll be immediately increasing your credit utilization rate on those cards until you can pay the balance down.

If you opt to cancel a credit card, try to close the newest one or the one you use the least.

More: How many credit cards should I have?

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2. Consider keeping the card to build credit

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There's no harm in keeping a credit card open with something as small as a Spotify subscription.

Keeping a credit card open means you’re still building positive credit, even if your account is mostly dormant.

Your credit score will only get dinged if you have an existing balance that isn’t paid off. Consider making regular small purchases and pay them off right away — or throw your Netflix subscription on it.

The longer you have good credit, the better you look for a loan, line of credit or mortgage.

Closing the card can erase years of good credit and skew the average age of your accounts. Banks like to see that your spending habits over time are consistent. Shuttering a long time account can damage that continuity.

Consider keeping the account open, but putting the card in a drawer at home where you can’t access it — especially if you’re struggling with financial responsibility.

3. Don't let rewards die with the card

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Take advantage of all your card's rewards.

Many credit cards have some sort of points or rewards program, especially if your card is industry-specific like with Aeroplan.

Once you cancel your card, all of the points and bonuses will disappear. Make sure to take advantage of any points earned before moving to cancel the card.

Make sure to check the retailer’s website before cancelling to get everything out of your soon to be nixed card.

On the flip side, here are some of the best rewards cards in Canada if you’re shopping for a new opportunity or sign-up offer.

More: Travel rewards vs. cash back credit cards

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4. Pay off your balance

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Be sure that your balance is paid off before you attempt to close out a card.

Unfortunately, canceling a card won’t magically erase mountains of debt.

You’re still on the hook for the card’s existing balance. Failing to pay it off could torpedo your credit score. As mentioned above, moving debt around can immediately ding your credit utilization rate.

Try to pay your card’s outstanding balance in full before cancelling your credit card.

5. Cancel all automatic billing

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Review your bills carefully.

Next up — try to cancel any automatic bill payments linked to your card.

If a merchant or service provider tries to charge your closed account the transaction can bounce. This is bad news for a few reasons.

First up, it could damage your credit score through non-payment and result in a call to your credit bureau. This can damage your credit score for up to seven years. You’ll also be charged late fees after an initial grace period of 30 days.

Second, you may end up losing access to key services. If your electricity bill is set up for automatic payment, this could quite literally leave you in the dark.

6. Make a goodbye phone call

Woman on the phone in her home office, in front of the computer.
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Calling the company helps tie up any loose ends.

With your due diligence done it’s time to pull the plug and cancel your card.

There’s two ways to do this officially: Either call the credit card company’s customer service number or send them an email, according to the Government of Canada. Let the customer service rep know that you’re ready to cancel.

They’ll likely ask why you’ve decided to close the account. You can give any reason you like because, ultimately, this is your decision and your account. The agent will almost certainly try to talk you into keeping the account as account numbers impact a bank’s key performance indicators.

Stay firm. It can also help to have a recent statement nearby so that you’re prepared to answer any questions the representative may have, and as a reminder of why you’re cancelling in the first place.

Wrapping up your cancellation

When you’re done, make certain that you receive confirmation of the cancellation in writing.

Keeping your own financial records is a great practice to get into and helps protect you from any errors made by the bank. It’s also a good habit to get into if you ever need to dispute charges to your card, especially when it comes to large purchases.

Although banks in Canada are obligated to keep records for five-years, this doesn’t always mean you’ll be able to get those records easily.

Sources

1. Government of Canada: Cancelling your credit card

2. Government of Canada: Record keeping requirements for financial entities

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Jack Lawson Freelance Writer

Jack has an undergraduate degree in journalism from Carleton University and a master's of Urban Planning from Toronto Metropolitan University. Over the years Jack has written for not-for-profits like World Vision and WE Charity, shot video content for accelerators like Techstars, and co-authored urban planning papers with organizations such as Parkdale's Neighbourhood Land Trust. Jack currently specializes in real estate and investing news.

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