There are many questions new card owners have about credit; for example, how to cancel a credit card, or how to apply for a credit card. When you apply for a credit card, there should be a process of research and application prerequisites involved before approval.

Before you apply for a credit card, you should also consider the monetary responsibilities, and potential consequences, involved in maintaining a credit card. After being approved for a credit card, owning and using it's a responsibility that should not be taken lightly.

Credit card use is all about the processes governing its' use.

There are processes that must be followed even for the non-use of credit cards as well, like cancellation.

You can't just take a pair of scissors, cut a credit card in two and then consider it canceled. Nothing in life is ever that simple, especially when it comes to credit card transactions and credit histories. There are processes, formal and informal, that must be considered if you want to cancel a credit card.

First of all, make a list of all the personal reasons you may have for canceling a credit card. You should know the, 'why?' just as much as you should know how to cancel a credit card. Don't make such decisions impulsively. Ask yourself:

Treat the potential cancellation of a credit card as a process and as a decision not to be made on a whim. After all, it's hard to get through life without credit. Also, canceling a credit card could affect your credit history if not done properly. Your credit history can determine if you're approved for a loan, a mortgage, certain kinds of employment and much more.

How to cancel a credit card is one thing. Should you?

Should You Cancel Your Card?

You may have many reasons for canceling a credit card. It's truly a subjective decision. The decision to do so depends entirely upon your own personal and financial circumstances. It could be up to a question of holding on to credit cards you need versus credit cards you want, but maybe don't need. However, before we discuss how to cancel a credit card properly, and its consequences, let's discuss if you actually should.

After all, there can be a lot of reasons why you should probably hold onto your credit cards. Even if you don't use them regularly.

Emergency Cash Fund

As long as you're gainfully employed and are able to pay down your balances, in full and on time, it might make sense to hold on to unused cards. Unexpected emergencies and bills are a part of life. You could set aside some credit cards, those you rarely or don't use, strictly for emergency and contingency use. As long as you stay dedicated to always paying off balances, your extra credit cards could come in handy if you're between jobs and looking for work.

Redeem Outstanding Reward Points

When you cancel a credit card, you're giving up any rights to reward points attributable to that card. A credit card rewards point program or incentive is a system where the cardholder is awarded a certain amount of reward points, or percentage, for a pre-set amount of money charged to the card. For instance, one point could be awarded for every $100 charged to the card. The reward points can then be redeemed, as per card issuer rules, for travel miles, cash-back or more points to attain a larger reward.

Make sure you check all credit cards you plan on closing to see if they have any accrued and unredeemed reward points attached to them. It's always a good idea to check for reward points accumulation on your cards periodically. Some reward points only last a few months or a year if unused. You may even be able to transfer some rewards points to another card account as per card issuer rules.

If your credit card has a good rewards system package, it might be worth holding onto. However, if you're set on canceling cards, make sure you check them for rewards. Otherwise, you're just throwing money and/or potential rewards away.

If you're still set on learning how to cancel a credit card, then you should be aware of how it can affect your credit score.

How Will it Affect my Credit Score?

Canceling a credit card, and its' accompanying account, will have consequences for your credit score. Whether those consequences are positive or negative depends on your personal credit history, if you have significant outstanding balances and if you habitually pay off debts after the due date. Basically, your balance payment history isn't wiped away following account closure.

Quite the opposite in fact.

Positive Credit Information

When you close a credit card account, the action will be recorded and visible on your credit history for at least seven years. Such an action can be attributed as a negative action or negative information on your credit history. If you have any declarations of bankruptcy, foreclosures or payment delinquency in your financial past, then such negative information can stay on your credit history for at least a decade.

The good news is that such information must come off after a decade or less. The Fair Credit Reporting Act, which mandates credit card companies maintain consumer privacy, keep credit histories accurate and conduct business fairly, federally mandates such conduct.

Positive credit information, like paying on time or positive credit utilization score, can stay on your credit history for an indefinite period. Canceling a credit card could make negative credit card activity stand out more than your positive activity.

Credit Utilization Score

Since the term was just mentioned, just what exactly is a credit utilization score? How can it be affected by canceling a credit card account? Why should it matter to you?

Basically, your credit utilization score is the ratio between how often you charge your card plus total accumulated debt versus the amount of available credit. If you're in the habit of maxing out your credit often and/or maintaining low available credit levels, then your credit utilization score can negatively impact your credit score.

Your credit score, also known as a FICO score, is used by credit card issuers to determine an applicant's creditworthiness. Your credit utilization score can account for up to 30% of your credit score.

If you have a good credit score history, zero or minimal outstanding balances and pay outstanding balances in full and on time, then an account closure should have a minimal negative effect.

Old Credit Keeps Creditworthiness New

Canceling a credit card, especially old accounts that you've maintained for years, can make you look like a credit risk.

The oldest accounts in your credit history can act as a time-stamp accounting for positive credit use. When you cancel a credit card account that has been active for years it will make newer accounts look short-lived. Once that happens, your overall credit history will look shorter. You may up end looking like a credit risk or someone with a short credit history. Potential credit card issuers in the future may not look upon your newly truncated credit history as a case of just canceling an unwanted credit card for its own sake.

Also, the longer that a credit card account with positive activity is open, the better your credit utilization and overall credit score will be.

How to Cancel a Credit Card Correctly

Every credit card company have their own rules, protocols, and processes concerning how to cancel a credit card properly. There is no one size fits all process for canceling a credit card.

Pay any outstanding balance you may owe on the credit card. You may also be able to ask the credit card issuer to freeze the account if you need time to pay off the balance.

Check your monthly statement or the back of the credit card and call customer service. Have a pen and paper ready. You can ask for the name of the customer service representative who helps you. Confirm that there are no outstanding balances, unpaid interest or any other fees. Inform the representative you want to close the credit card account. Inquire if there are any verification numbers you will need to verify account closure later on. Then ask for a name, office, and address connected to the card issuer.

Take detailed notes while you are speaking to the customer service representative. Write down the date, time of the phone call and the name of the representative who serves you. It can never hurt to have the facts on your side if there is a problem or discrepancy later on.

Write a formal letter of card cancelation. Mail it to the referral source given to you by the customer service representative. Depending on the card issuer, you may be even able to email such a letter.

Check your credit score after you cancel the credit card. There are three credit score bureaus, Equifax, Experian and TransUnion. So that means you may have three different credit scores. Check your credit scores for mistakes that can be rectified.

Conclusion

If you want to know how to cancel a credit card, it should be as officially as possible. Make sure you have no outstanding balances. Be aware of how it will affect your credit score. Check your monthly statement and call a customer service representative to cancel the card as per the issuer's cancelation process.

Credit card ownership and cancelation is all about the process after all.

Remember to stay patient. Canceling a credit card account could take days or weeks.