Canceling Credit Cards
If you are considering canceling a credit card, there are a few things that you should know.
Your Credit Score
Cancelling a credit card can affect your credit score. Credit card accounts appear on your credit report after you have closed them for as long as seven years. They become part of your credit history. A factor that is averaged into your credit score by credit bureaus is something called your debt to credit ratio. Simply put, this is a comparison of the total amount of credit available to you compared to your current total debt. Lowering your total credit by canceling a credit card will make this ratio lower, when what you want is to make it higher. In other words, you want to have the largest amount of credit available while having the lowest amount of debt. If you can’t lower your debt, then lowering your overall available credit will actually lower your credit score, giving you a worse credit rating. Closing an account may not be a good idea unless it is the only way that you can keep yourself from continuing to use to card to accumulate new debt. You should think twice about canceling older credit cards because having accounts with longer payment histories can also improve your credit score. Even if you feel that you need to go ahead and cancel a card, you may want to wait if you are about to apply for any type of loan. After the loan has closed is the best time to make any changes that may temporarily lower your credit score.
Closing Your Account
If you have decided to go ahead and cancel your credit card, be aware that closing an account the right way is important. There are a number of steps that you need to take.
- Pay off the balance in full. If you inform a card issuer that you are canceling your account, they may actually raise your interest rates to the highest allowable by law as a penalty if you have an outstanding balance.
- Confirm that your balance on the credit card is zero. You can do this by calling the customer service number printed on the back of your card or monthly statement. If necessary, you can request your bank’s phone number from the toll-free information number: 800-555-1212.
- Inform the customer service representative that you are cancelling the card. You may be transferred to a special department so that they can try to convince you not to cancel. You may be offered incentives to keep the card active, such as a lower interest rate. If these offers may sound appealing, consider the impact of keeping the credit card open. If you are convinced you want to cancel, remain firm if the representative tries to change your mind.
- Request a name and address where you can send a notice of your cancellation.
- Write a short letter stating your decision to cancel your credit card and requesting written confirmation of the closure. Include your name, address, phone number, and account number. State that you want your credit report to show that you requested the account closure.
- Make a copy of this letter for your records before sending it to the company.
- Destroy all copies of your card.
- Allow up to 30 days for the bank to close your account.
- If you have not checked your credit report in the past year, order a free to make sure it indicates the account was “closed at customer’s request.” Should the credit report show the account was “closed by creditor,” which reflects badly on you be sure to contact the credit bureau to dispute this.
Keep in mind that it is your responsibility to ensure that your credit record is accurate and your credit score is the best that it can be.