"It's been a good run, my little plastic friend. But it's time you and I said goodbye."
Maybe your card has limited benefits, maybe its fees are too high; maybe you find its very existence will lead to more spending beyond your budget; or maybe it just doesn’t look cool when compared to newer, fancier cards in the market (hey, aesthetics mean more to some people than others!). Whatever your reasons may be, the thought of cancelling your credit card has crossed your mind and it may be time to do so. But don't grab those scissors just yet; hear us out. Cancelling a credit card means a loss of business for the bank so you can be sure it’s not going to be as easy as a snip in two.
Before putting your plastic through the guillotine; be ready to consider some of these factors.
Consider your credit score
Credit scores can be complicated to calculate and understand, but it exists for a reason. Banks, insurers, lenders and more refer to your credit score to see if you are eligible for credit products, and they do this by referring to your previous repaid loans, any outstanding debt and your current salary which becomes part of your credit history. How you use and pay back your credit is also accounted for, so when you cancel your credit card, you can be sure your credit score will reflect this ‘grievous’ slur on a bank’s business.
Why is this? Think of it this way – a credit score enables banks to decide whether you are fit to be lent to. If you decide to cut up a credit card say; too soon after receiving it; banks are likely to think “This person isn’t serious about the banking product he applies for. He’ll take it for a while and run and is probably not worth the time or effort it takes processing another loan or card for him. He’s not the kind of business we want.”
If you aim to take on a loan or make major purchases like a house in the near future, you can bet this dim view will affect your chances. But the above is merely an example. There are many reasons why it would definitely be best to simply break ties with your card and reasons why you shouldn’t just yet. Let’s now take a look at what may constitute good and bad reasons to cancel.
Good and bad reasons to cancel a credit card
So what is a sufficiently good reason to cancel your card?
- The credit card has high interest rates and miscellaneous fees. While your credit score is important, spending more to keep this card isn't worth it.
- You've opened a new credit card account for a balance transfer. The reason for this is that though it may not look good on your credit rating; the flipside is worse. If you had trouble controlling your spending to the extent that you needed a balance transfer – having an additional empty credit card may be more temptation than you’re able to manage. Don’t give in. Your credit rating will improve with time but your finances won’t if you end up piling more debt onto your empty credit card.• If you really cannot control your spending with it, then it truly is best to be rid of it. The same rationalisation as above applies.
- You wish to reduce the risk of fraud. Perhaps your laptop has been stolen and saved passwords or online banking accounts have rendered your credit card details compromised. Maybe you’ve written the card number on a payment form that was badly handled by the merchant. There are many ways sensitive credit card details can be compromised. Instead of waiting for the axe to fall and be saddled with debt you didn’t accumulate; nip the problem in the bud by cutting the card before fraudulent charges are made.
- Those are some of the good reasons but what about bad ones? Think twice about cancelling your credit card if any of the following apply to you.
- It is your only credit source. If you have no other credit cards or loans, but you are planning to get one in the future, cancelling your credit card could affect your applications for loans or credit in the future. How will the bank know if you’re worthy of credit if you can’t show it on paper?
- You have a good and long credit history with this card. Canceling would mean losing your credit history in the near future, and without it you could also lose out on getting lower interest rates for loans or credit especially if you were diligent and paid your bills on time. On the flipside; if you’ve been a long-time customer and found the bank only rewarded you with continuously high interest rates that aren’t on par with more competitive cards in the market – then give them the toss. If your loyalty isn’t appreciated; take it elsewhere.
Got some good reasons? Great, now we tell you how to go about properly handling your cancellation.
Cancel your credit card properly
Like a bad exorcism; not cancelling your credit card properly may have it haunt you again in future. Put it to sleep for good with these steps.
- Check your credit score. It would be helpful to know what your credit score is before as well as after cancelling your credit card. Whilst there isn’t really anything to be done to change it – knowing what it is will help you calculate the risks of cancelling again in future. You can do so by checking out the Credit Bureau website by Bank Negara Malaysia.
- Pay off your balance on the card, and cancel any auto payments you make using the card.
- Redeem all accumulated rewards points so you don't lose out on your well-earned freebies.
- Contact your bank to start processing your cancellation. You can consider possible lower rates and benefits for the card that they may offer if it helps, but if you're really determined to cancel the credit card, insist on it. Be sure that you have stopped all auto payments on the card and that it will be no longer in use to ensure no further payments or fees from the card in the future.
- Cutting that piece of plastic with scissors does not cancel a card. All it does is prevent you from using the card again in future. Although some may tell you that cancelling via phone with the bank suffices – it’s always better to have things in black and white. Write an official letter to your bank stating your intention to cancel. The letter should contain your full name, IC number, credit card number, credit card type and date of issuance as well as expiry. Include a line which clearly states when you wish the card terminated (usually the date of submission to the bank). More information is always better than less. Make a copy of this letter and take it to bank. Submit one copy to the bank and have them stamp your copy to acknowledge receipt with the date of receipt clearly stated. This is your proof should any dispute arise in future about the continuous validity of your card. It will also be helpful to append any payment receipt or statement to show that the card has been paid in full and carries no balance as at the date of effective cancellation. Some people prefer to also include the duly cut credit card to the bank when they’ve cancelled their account.
- Be sure to follow up on the status of your credit card once you've requested for the cancellation.
Successfully cancelled your card? Awesome. If you cancelled because it wasn't giving you enough goodies - check out our credit card comparison tool to find a card that'll treat you (and your money) right!