Sometimes a card no longer fits your life. Maybe the annual fee feels too high, or you have more cards than you need. Before you cancel a credit card, though, a little planning can protect your rewards and your credit. This guide walks you through each step in Canada.
When Cancelling a Card Makes Sense
Closing a card can be a smart move. For example, you might pay a fee for perks you no longer use. Or an extra card may tempt you to overspend.
Other common reasons include simplifying your finances or replacing a card with one that suits your spending better.
On the other hand, closing a card isn’t always the best choice, especially if it has no annual fee.
Redeem Your Rewards First
Points and cash back are usually tied to your account. As a result, closing the card can put them at risk.
Rules vary by issuer. For instance, Capital One’s terms say you lose unredeemed cash rewards if your account is closed. By contrast, CIBC’s Aventura terms give you 60 days after you close your account to redeem points, with fewer reward choices.
So check your program’s terms before you cancel a credit card that still holds points. Then redeem them while the account is open and in good standing.
Pay Off the Balance
Closing your account doesn’t erase what you owe. You still need to repay the full balance.
In fact, the Financial Consumer Agency of Canada (FCAC) notes that interest still applies to an unpaid balance after closing. So it’s best to pay the card down to zero first.
If you can’t pay it all at once, keep making at least the minimum payment on time. According to FCAC, payment history is the most important part of your credit score.
How Closing a Card Can Affect Your Credit
Before you cancel a credit card, think about your credit score. The effect depends on your whole credit picture. However, two factors matter most.
First, there’s your credit utilization rate. This compares how much credit you use with your total credit limit. When you close a card, you lose its limit. As a result, the same spending takes up a bigger share of your remaining credit.
Second, there’s the length of your credit history. FCAC says lenders want to see a long and stable credit history. Closing an older account can mean losing some of that history.
For these reasons, FCAC suggests keeping an account open if it has no annual fee and is easy to manage. This matters most when the card is one of your oldest.
Consider a No-Fee Downgrade Instead
If the fee is the main problem, you may not need to close the account. Instead, ask your issuer about switching to a no-fee card.
Before you switch, ask what happens to your rewards. For example, CIBC’s Aventura terms set a 60-day redemption deadline when a card is converted, unless CIBC advises otherwise.
To see what a no-fee option looks like, consider the Scotia Momentum No-Fee Visa card. It currently has no annual fee and earns up to 1% cash back on eligible everyday purchases. If you hold a Scotiabank card with a fee, you could ask whether a switch is possible.
Would you rather open a new no-fee card? Great Canadian Rebates lists a Scotia Momentum No-Fee Visa cash back rebate for approved applications started through its link. Read the conditions first, because repeat cardholders of the same card don’t qualify.
Move Your Recurring Payments
Pre-authorized payments are easy to forget. Think of streaming services, gym memberships, phone bills, and insurance premiums.
FCAC warns that recurring charges can still appear after you cancel. If you don’t update them, the company may keep billing you, and those charges build up until you pay them.
To avoid surprises, go through a few recent statements. Next, list every recurring charge. Then contact each company to switch to another card or payment method, or to cancel the service.
How to Cancel a Credit Card, Step by Step
Once you’re ready, the process itself is simple. FCAC’s guide to cancelling your credit card lays out the key steps:
- Contact your issuer. Call or write and ask to close the account. You’ll find the phone number on your card, your statement, or the issuer’s website.
- Ask for written confirmation. Once it arrives, destroy the card and keep the confirmation for your records.
- Check your final statement. Purchases you approved before closing, plus recurring charges, may still show up.
- Check your credit report. Make sure it shows the card as cancelled. FCAC says reporting the change usually takes about 30 days.
Keep in mind that cutting up your card doesn’t close the account. Neither does letting it expire or simply not using it.
What About the Annual Fee?
Did you recently pay an annual fee? If so, ask your issuer whether any part of it can be refunded. The answer can vary by issuer and card, so get it in writing if you can.
It’s also smart to ask before your renewal date, so you have time to decide.
The Bottom Line
When you cancel a credit card carefully, you protect your rewards and your credit. First, redeem your points, clear the balance, and move your recurring payments. Then call your issuer and get confirmation in writing.
Ready for a card that fits you better? Before you apply, visit Great Canadian Rebates to see if you can earn cash back on it. That way, your next card starts paying you back from day one.