Whether you have an old credit card that you forgot you had or you have a card with a high annual fee, there may be times when you need to close a card. If you're wondering how to cancel a credit card, it's easier than you may think. But closing a card can affect your credit, so it's important to understand the impact before moving forward.

How to cancel a credit card in 7 steps

Whatever your reasons may be, closing a credit card is surprisingly easy. You can close or cancel a card in just seven steps.

1. Review your cardmember agreement

You can view your cardmember agreement online through your customer portal. The agreement will outline any special instructions for canceling the card, such as submitting a written notice or calling a specific number. The agreement will also explain how your rewards are handled if you close, as well as interest charges.

2. Use your rewards

With some cards, you lose any accrued rewards, including airline miles or points, when you cancel your card. To ensure you don't lose any accumulated rewards, redeem them for statement credits, gift cards or travel arrangements before closing your account.

3. Pay off the balance

Before closing the card, you typically need to pay off the balance in full. Otherwise, the issuer may not allow you to close the account.

4. Contact the credit card issuer

With most credit card issuers, you must contact their customer service departments over the phone to cancel the card. You'll need to verify your identity and have your card number handy. Tell the representative you'd like to close the account, and they will handle it for you.

They should send you a notification via email or postal mail confirming that the account was closed.

5. Cut up the card

Once the card is closed, cut up the physical card before throwing it out. Destroying it will ensure it cannot be used for fraudulent purchases.

If you have a metal card, such as The Platinum Card® from American Express (see rates and fees) or Capital One Venture X Rewards Credit Card, you may instead need to return the card to the issuer by mail or at an in-person branch.

6. Update your automatic billing

Review your old credit card statements to determine what expenses were tied to the card. If you used it for recurring expenses and were enrolled in autopay, delete the card and replace it with another payment method.

For example, maybe you use a card like the Blue Cash Preferred® Card from American Express (see rates and fees) to get cash back on streaming service subscriptions each month, but you’ve decided to cancel the card. You’ll need to log into each account connected to the card before your next payment is due.

This step is critical! If you forget to update a linked account, you run the risk of missing a payment, and those late payments can cause you to incur late fees and damage your credit.

7. Check your credit report

The credit card issuer will report the account closure to the major credit bureaus: Equifax, Experian, and TransUnion. It can take one or two billing cycles, but you should see the closure reflected on your credit reports within a few months.

Your credit report will continue to list the closed account, but it will show that the account isn't active. The credit card account will continue to be listed on your credit report for up to 10 years.

Impact of closing a credit card on your credit

Chances are, you have several credit cards in your wallet. According to Experian, one of the three major credit bureaus, the average American has nearly four credit cards.

If you aren't using all of your cards, you may be thinking of canceling a card. However, closing a credit card account could damage your credit.

Canceling an account will lower the amount of credit available to you and increase your credit utilization — a factor impacting about 30% of your FICO credit score. In general, lenders look for a credit utilization under 30%. However, the Office of Financial Readiness recommends keeping your credit utilization between 1% and 10% to build and maintain good credit.

How does canceling a credit card impact your credit utilization? Consider this example. You have three cards, and each card has a limit of $1,000, so you have $3,000 as a total credit limit. You carry the following balances on each card:

• Card 1: $500

• Card 2: $450

• Card 3: $0

Your total credit card debt is $950, so you're using approximately 32% of your available credit.

You don't use Card 3 often, so you decide to close that account. When you close it, you lose access to that card's $1,000 limit. Even though your overall balance of $950 doesn't change, the amount of credit you use — your credit utilization — increases. With just two credit cards with $2,000 in combined credit limits, you're now using 47.5% of your available credit. At that level, lenders may think you are using too much of your available credit, and they'll be less likely to approve your application for a loan.

Good reasons to cancel a credit card

Although there can be some impact on your credit, there are some cases where closing a card can be a smart decision:

You're going through a divorce

If you have a joint credit card, you both share responsibility for the card's charges. That's true even if you split up; you'll continue to be legally responsible for your ex-partner's credit card charges. The only way to end your obligation is to close the credit card.

Your card has expensive fees

Some cards have costly fees, such as annual or monthly account fees. These fees can add up over time so, if you have a card you don't use regularly, you can save money by closing it.

If a high fee is your primary reason for canceling your card, you may want to consider a product change instead. For example, maybe you no longer travel enough to get the best value from your premium Chase Sapphire Reserve® and believe the lower-fee Chase Sapphire Preferred® Card would better fit your current spending and budget.

Asking your issuer for a change instead of closing the card outright will allow you to maintain the account history on your credit report but still get a card that works better for you.

You're the victim of fraud

If your identity has been stolen or your credit card account compromised, the thieves could use your information to make charges. If you notify the credit card issuer about the theft, they will cancel your existing card number but keep your account open and issue you a new card.

The structure of the card is changing

Credit card rates, fees, and benefits can change over time. Credit card issuers must notify you of any changes at least 45 days in advance, so if the new terms are less favorable, closing the card can be a good idea.

You have trouble resisting temptation

Personal finance isn't just dollars and cents; there is a significant psychological component, too. Some people find that having too many credit cards causes them to overspend; the temptation of having a credit limit causes them to spend more than they would otherwise. If that's the case for you, closing the account could be a smart decision regardless of the impact on your credit.

Managing your credit cards

Now that you know how to cancel a credit card, you can decide whether it makes sense to close one of your cards. Although closing a card can cause your credit score to decrease, it can be worthwhile if you have cards with high fees or are trying to control your spending.

If you decide to cancel your card, be sure to update your automatic payments to ensure you continue making all of your payments on time and avoid late fees.

Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers.