How to Cancel a Credit Card
Closing a credit card involves more than just terminating its usage. Going about that process requires that you go through a series of steps to ensure that you do it the best way possible.
Considerations Before Closing a Credit Card
Before you decide to close a credit card, there are a few things to consider. Below are some:
Assess your Credit Score
It is important that you evaluate how closing your credit card will impact your credit score. You see, when you close your credit card, the information included doesn’t just disappear as well. If you had a stellar report, the positive information could remain on your credit history for up to 10 years after closing your credit card.
This is different when it comes to negative information that has an expiration date. According to the Fair Credit Reporting Act, all negative information should be brought down after 7 years.
In addition, most lenders consider the amount of usable credit against the credit limit also referred to as credit utilization ratio at the time of cancellation. With this in mind, the best way to move forward is to ensure that you pay off any outstanding balances to make sure that your credit utilization ratio stands at 0. With that, your credit score won’t spiral down.
To understand better, consider the example below:
If you have 3 credit cards as follows:
- Credit card 1 with a limit of $1,000 and $500 in balance
- Credit card 2 with a limit of $5,000 and $2,500 in balance
- Credit card 3 with a limit of $9,000 and $0 in balance
Your credit utilization stands at 20%. When it comes to closing a credit card, you might be tempted to close credit card 3. But that’s a wrong move because your credit utilization ratio will increase to 50% and that’s not so good before the eyes of any lender.
How Old is your Card?
Old is gold. That old adage doesn’t sound any more relevant than in this situation. How long your credit card has been in operation counts. If you have a positive credit score that spans a long time, then you are in the clear.
This is because lenders tend to shy away from borrowers with shorter credit histories. However, it doesn’t mean that your credit score won’t suffer a drop. It means that the drop doesn’t show up immediately, but it will drop after some few years after your card disappears from your credit report.
Steps to Take While Closing your Credit Card Account
Now that you know what to look at before going down the path of credit card cancellation, the following steps will help you do that in the best way possible. Remember that closing your credit card takes time, a lot of patience and order.
- Clear All Outstanding Balances
For you to draw the curtains on your credit card, you need to offset all balances. Nevertheless, you should also focus on your other credit card balances as well as any other outstanding debt.
Your credit utilization ratio plays a big part in this process, so keeping it under 30% of the total FICO score should work in your favor. Also, be sure to keep tabs on associated interests and fees that could pile up over a period of time. The best way to do this is to wait for some weeks before confirming that you have no outstanding balances.
- Contact your Credit Card Company
After you’ve taken care of the balances, initiate a conversation with your credit card company. In the process, you can also take the advantage and ask them to confirm whether you have any balances as you let the company know that you intend on closing the account.
By closing the card, you intend on closing it on a permanent basis. This is known as hard closure. The latter makes sure that the company doesn’t impose any new charges in the future.
- Put it in Writing
Documenting this entire process is important. You want a paper trail that can be used as evidence in the event of a disagreement.
After you hang up the phone on your credit card company, start drafting a letter that shows your intent on closing the credit card. In your letter, request for confirmation of cancellation of your account with $0 balance. Also, ask the company to indicate that the closure was initiated or requested by the customer to go out to all credit bureaus.
In the letter, remember to include your current phone number and address. To be on the safe side, make sure that you send the mail through certified mail. This way you’ll get a confirmation that your mail was received by the credit card company.
It’s not all done and dusted yet. As a customer, always ask your credit card company to get back to you in writing confirming your account closure.
- Counter-check your Credit Report
This is the last step. Go back to your credit report to confirm that your credit card was closed without any glitch.
You can even go a step ahead and visit AnnualCreditReport.com about 60 days after your issuer confirmed closure of your account. The report should read “account closed upon consumer’s request.” If it reads “account closed by creditor”, then your credit could suffer.
If you ever consider closing a credit card, take the above steps. Always ensure that you stay informed on your own credit health. The health here is in terms of your credit history and credit utilization. With that in mind, you should always tread such waters with extreme caution.
All in all, closing a credit card should help you solve a difficult situation when it comes to finances and not the other way around.