There may be credit cards that you keep around for awhile, and others you want to get rid of. You can easily close a credit card account by calling customer service and asking them to close your account. Your credit card will probably end up getting closed, but it’s not the best way to cancel your credit card. Before you cancel a credit card, tie up a few loose ends and leave a paper trail in case things go wrong.
Why do you want to close your credit card?
Far too many people close credit cards out of anger, like they’re trying to get back at the credit card issuer for one thing or another. It doesn’t work. Closing a credit card is always more likely to hurt you than your credit card company.
More sensible reasons for closing a credit card account are because you have too many credit cards to manage, your credit card issuer just increased your interest rate, or the credit card issuer just added a new credit card fee you can’t avoid.
Pay off the credit card balance.
Leaving a balance on a closed credit card will always hurt your credit score. That’s because 30% of your credit score is based on your level of debt, which compares your credit card balance to your credit score.
Closing a credit card with a balance raises your debt-to-credit ratio for that credit card to 100%, a move that could really hurt your credit score, especially since a credit utilization of 10% or less is ideal. Once your credit utilization rises past 30%, your credit score is severely impacted.
Once you’ve paid off your credit card, then it’s ok to close it. Avoid making new charges on the credit card, otherwise paying off the balance will be much harder.
Check your other credit cards.
Leave the credit card open if you don’t have any other credit cards. This will help boost your credit score since your mix of credit is 15% of your credit score. You need to have different types of credit accounts – both credit cards and loans – to get the best credit score.
You may need to leave this credit card open to balance out your overall credit utilization, the ratio of your total credit card balances to your total credit limits. If your other credit card balances are relatively high, losing available credit could drive up your credit utilization resulting in a blow to your credit score.
For example, let’s assume you have three credit cards (including the one you want to cancel) with total balances of $5,000 and total credit limit of $20,000. Your overall credit limit is 20%. If you close a credit card with a $10,000 credit limit and your total balances remain the same, your credit utilization will shoot up to 50% ($5,000/$10,000).
Closing a credit card account is about your total credit card portfolio, not just the one credit card you want to close.
When the coast is clear, make the call.
Once you’ve done the due diligence to make sure closing your credit card won’t hurt your credit score, call the number on the back of your credit card to let your card’s customer service know you want to close your account. Be prepared for them to try to convince you to keep your credit card open. They may even offer a lower interest rate or other incentive for keeping your credit card open. If you truly want to close your credit card, be firm and repeat that you’d like to close your credit card account.
Follow up in writing.
Even though you’ve let your card issuer know via telephone that you want to close your credit card, it’s a good idea to follow up in writing. A letter confirming that you requested your account to be closed will help clear up any possible future confusion about closing your credit card.
In your letter, make sure you include your name, address, and account number. It will also help to reference the date and time of your telephone call to close your account.
Sending your letter via certified mail or return receipt requested (or both) will help you prove the card issuer actually received your letter if the fact ever comes into question. Make sure you send the letter to the address specified for correspondence and not your regular payment mailing address.
Check your credit report.
Your credit report will confirm that your credit card account was closed as requested. It could take at least 30 days for your account to be closed and your credit report to be updated. The account should say “Closed” or “Closed at cardholder’s request.” It should not say “Closed at grantor’s request.” The listing itself won’t damage your credit score, but could be viewed negatively by businesses that check your credit report in the future.
If the account isn’t correct on your credit report, confirm with your ex-card issuer that the account was actually closed. You may not have given enough time for your credit report to be updated so wait and try again in another 30 days. If the account continues to be reported inaccurately, submit a credit report dispute and include a copy (not the original) of your letter as verification of your request to close the account.
Don't forget to let me send you future guides and tutorials. Just subscribe to the RSS feed, or just enter your email below; I'll make sure the updates are emailed to you.
