Can Cancelling A Credit Card Have Detrimental Effects?

It’s perfectly understandable that some credit cards just don’t fit into your existing lifestyle anymore. The first thing that pops into almost everybody’s mind when they find themselves in this situation? Cancel the credit card, pronto. 

Before you actually cancel your credit card, learn how cancelling a credit card can affect your credit rating and when exactly cancelling a credit card makes sense. 

Since we’re on the topic, we’ve also gathered tips on how you can ask for credit card annual fee waivers (if cost is driving you to cancel your credit card) as well as things you should look out for before cancelling your credit card. 

How does cancelling a credit card affect credit?

Your credit utilisation percentage can increase, lowering your credit score 

Cancelling a credit card can do some damage to your credit, particularly if the card you’re cancelling has one of the highest credit limits amongst all the credit cards you hold. 

This is because your total credit utilisation percentage (i.e. how much of your credit limit you use) will increase so long as you carry balances on your credit card. This may negatively impact your credit score. 

Consider the scenario below where Xiao Ming holds two cards, A and B. Card A has a balance of S$1,000 and a limit of S$5,000. Card B has a balance of 0 and a limit of S$10,000.

Card	Balance	Limit	Utilisation
Card A	S$1,000	S$5,000	-
Card B	S$0	S$10,000	-
Overall	S$1,000	S$15,000	6.7%

When Xiao Ming cancels Card B, his total credit limit decreases from S$15,000 to S$5,000, but his outstanding balance remains the same. This means he is using 20% of his credit limit, more than 3X than before!

Card	Balance	Limit	Utilisation
Card A	S$1,000	S$5,000	-
Overall	S$1,000	S$5,000	20%

A lower credit score would result in a harder time applying for loans in the future. On the credit scale, the highest attainable score is 2,000 whereas the lowest score is 1,000.

Therefore, a score anywhere between 1,000 to 1,723 is considered a bad credit rating, and marked with a risk grade "HH".

💡 Pro-tip: To find out your credit rating, request your credit history report at the Credit Bureau Singapore Report. Do note there is a retrieval fee of S$6.42.

Older credit is better than new credit when it comes to credit score

Cancelling a credit card with a long history of punctual payments can also be damaging to your credit score! If you’re looking to apply for a loan anytime in the near future, consider cancelling recently acquired cards instead. 

If you don’t already know, the average age of your credit card accounts affects your credit score. A credit card that you’ve had for a long time helps your credit as long as you keep it open and in good standing.

When does cancelling a credit card make sense?

#1 The card has high annual fee and you don’t use the rewards 

In an ideal world, savvy credit card users seek to make each dollar they spend go further with the rewards they can potentially earn. If your card has a high annual fee but you haven’t been looking for ways to utilise your rewards, perhaps consider cancelling the credit card. It’s just not worth it to pay the high annual fee! 

#2 You struggle with overspending

Have a tendency to max out your credit cards? Consider closing a credit card account or two. Out of sight, out of mind. 

#3 You want to renew eligibility for sign-up bonuses 

Banks reserve their most generous gifts and sign-up offers for new-to-bank customers. Take a look at the exclusive offers and gifts available on SingSaver if you need more convincing. 

When does keeping my credit card account open make sense?

When it comes to credit score, the duration you’ve had your credit card account open and in good standing matters. In general, a high average age for your credit card accounts can help to improve your credit score. Therefore, it makes sense to keep your credit card account open if it is the oldest or one of the oldest accounts you have! 

If you don’t have many other credit card accounts open to begin with, you might want to consider keeping your credit card account open as it prevents your credit utilisation ratio from increasing drastically, even if you keep your spending consistent.

How to ask for credit card annual fee waivers

If you don’t try, you’ll never know. In fact, it pays to be a little brazen when it comes to asking for credit card annual fee waivers — some banks even make it easy (and quick) for customers to get their credit card annual fee waivers! 

To give you a leg up, here’s our comprehensive guide to asking for credit card annual fee waivers from major banks in Singapore, such as DBS, OCBC, UOB, Citi, HSBC, SCB and more. It could be as simple as dialling in and pressing a few buttons.   

Things to do before cancelling a credit card 

#1 Pay off all outstanding balance 

Your outstanding balance doesn’t just include whatever appears on your most recent statement; there may also be pending amounts that have yet to be posted to your account. 

Why should you clear your credit card bill in full? Well, you don’t want to be in a situation where these ‘forgotten’ charges are left as black marks in your credit report. 

#2 Redeem your rewards 

Before you cut your credit card, be sure to check for existing rewards points, cashback or miles. Don’t forfeit the credit card rewards you’ve accumulated — you’re entitled to utilise them! 

#3 Update your billing instructions 

Have the habit of charging recurring payments to your credit card? This tip is for you. 

The cancellation of your credit card will automatically result in the discontinuation of these recurring payments. To avoid being stuck in a sticky situation with unpaid bills, definitely reset your recurring payment schedule(s) with another card right away.