The right way to close a business credit card in 2023

Did you know that there’s a right way and a wrong way to close your small business credit card? If you do it the wrong way, you could miss out on rewards and benefits, and possibly even incur late fees and interest payments. Use these steps to make sure that you close your credit card account the right way.

Should you ever close a business credit card?

There are some good reasons why you may want to close a business credit card. For example, you:

1. Are closing your business. You will likely want to close your business credit cards as you wind down your business. 
2. Want a different rewards credit card. Perhaps you have a co-branded airline credit card, but you no longer fly that airline enough to justify keeping the card. Or maybe you prefer cash back rewards. 
3. Don’t want to pay an annual fee. Some cards carry high annual fees, and you may want to switch to one with a lower fee. 
4. Don’t want to keep track of multiple cards. If you’ve opened new cards, perhaps to earn sign-up bonuses, you may want to cut down on the number of cards you need to keep track of. 

These can all be good reasons for closing your small business credit card account. 

Alternatives to closing a business credit card

Before you close your account, you may want to talk with your card issuer. The market for small business credit cards is extremely competitive, and card issuers are willing to go to great lengths to retain existing customers. 

For example, if you are closing your account because the annual fee is too high, and you let your card issuer know, then it may waive your annual fee to keep your business. Likewise, if the standard interest rate is not competitive, then your card issuer might be able to offer you a lower rate.

And even if you aren’t satisfied with your card’s rewards and benefits, you can actually have your existing account converted to a different card offered by the same issuer, without having to close your account or apply for a new card. This is called a product change (or sometimes a downgrade), and your existing account information and balance will be retained, while having the rewards, features and benefits of a different card.

One of the advantages of a product change is that you don’t have to update your account information with your existing billers, which you would have to do if you closed your account. Also, when you request a product change you continue to lengthen the account history in your credit report, which can help your credit score. 

The primary drawback to a product change is that you won’t qualify for any sign-up bonuses or promotional financing that’s offered to new applicants.

To find out about all of these options, simply call your credit card company and indicate that you are considering closing your account. In most cases, you’ll be transferred to a representative in a special department called “retentions” who is authorized to present you with valuable alternatives to closing your account.

How Closing a Credit Card Affects Your Credit

One reason you may be reluctant to close your credit card is because you are worried about how it will affect your FICO scores. This is a valid concern. Closing a credit card may affect your “credit utilization ratio” (also called debt utilization ratio) which compares your credit limits to your balances as they appear on your credit reports. Closing an account lowers your available credit and that can, in turn, increase your credit utilization rate. 

Business credit cards may be different, though. Many business credit card issuers do not report payment history for business credit cards to the cardholder’s personal credit history, except in the event of default. See which issuers report to personal credit here and check your personal credit reports to see whether the card you want to close appears on your personal credit reports Closed accounts won’t affect your personal credit if they were never reported to the consumer credit bureaus in the first place. 

Steps to Closing a Credit Card

1. Consider your rewards

If you’ve considered the alternatives, but still decided to close your account, then make sure you find out exactly what will happen to your rewards. If your card offers you rewards in an airline or hotel program, then those points or miles will remain valid, regardless of whether you have their co-branded credit card. 

But if the rewards are in a program operated by the credit card issuer, then your rewards could disappear soon after your account is closed. 

For example, you will immediately lose your American Express Membership Rewards points when you close your account, unless you have another account open that participates in the program. However, if you have another American Express card, then you’ll have a 30 day grace period to redeem your rewards. Needless to say, you should always plan on redeeming your rewards while they are still valid.

2. Decide how to handle any credit card balance

When you close your small business credit card, you have several options to address your account balance. First, you can simply pay it off. If you have been avoiding interest charges by paying your balance in full, and you pay off your remaining balance, then you will have nothing additional to worry about. 

If you have been incurring interest charges, and you pay off your last statement balance, then you may still have remaining interest charges that have been incurred during your current statement period. Those charges will appear on your next statement period, and you can still be assessed late fees and penalty interest rates if you fail to make your payments on time. Make sure you don’t ignore that final balance. 

If you are carrying credit card debt on a card you want to close, you may want to consider using a balance transfer to pay off that outstanding balance, and have it transferred to your new card. You could also consider paying it off with a small business loan. 

Finally, you can continue to pay off any remaining balance on your card under the terms and conditions that applied when you closed your account. Technically, your account will still be open, but you will no longer be able to make new charges.

3. Update account info with billers

One of the conveniences of having a small business credit card is the ability to have the information on file with vendors that frequently bill you. But once you’ve closed your credit card, you need to contact these billers and provide alternate payment information. Otherwise, you could eventually receive invoices that include penalties for late payments.

4. Notify authorized cardholders

When you close your small business credit card account, all of your employee authorized cardholders will be unable to make charges. You need to inform them that the account is closed and have them destroy their cards. You may also need to provide them with a new method of paying for company purchases.

Frequently asked questions about closing business credit cards

Should I Close A Credit Card Account Before Opening A New One?

It’s not necessary to close a credit card account before you open a new one. In fact, you may want to keep it open in case you need to use it while you await the new card. In the case of consumer credit cards, you may also want to keep the old card open until you get the new one to help avoid a change in your utilization ratio when you close the old one. This is less of a concern with business credit cards that do not appear on personal credit.

How Long Should I Wait To Open A New Credit Card After Closing One?

If you’re worried about your credit scores, then again, you don’t have to wait a certain amount of time after closing a credit card before you open a new one.

Can I Reopen A Business Credit Card That I Previously Closed?

If it’s been a short time since you closed the account you may be able to get the card reinstated, but that’s entirely up to the issuer. More commonly you’ll need to reapply.