So I was reading creditcards.com and came across an interesting article on canceling credit cards the right way. Apparently, there’s a way to cancel your credit cards without jeopardizing your credit score.
According to creditcards.com, there are six steps to take in order to effectively cancel your credit card and avoid negative repercussions on your credit report. I thought we’d take a look at these six steps and talk about them just a little.
# 1 – Know who to contact
Well, this one is a no-brainer. You have to gather the contact info for the credit card company you’re going to call. Creditcards.com suggests you gather both the telephone number and the mailing address.
# 2 – Pay off your balances
Admittedly, I didn’t follow this advice when I was paying off my credit cards. According to creditcards.com, it’s better to pay off your card before telling them you plan to close the account. There’s no real benefit to you by telling them of your plans, but in doing so, it can backfire. Lenders could raise the interest rate on the outstanding balance, leaving you paying back more in interest simply because you’ve closed the card.
# 3 – Close the card
Once you’ve paid the balance off in full, it’s time to give the credit card company a call. It’s a good idea to keep notes of dates, times, and names of the people you’ve spoken to. You’ll also want to be prepared for the representative to try and talk you out of your decision. In some cases they will make very good arguments or offer you deals that may be tempting. But, you’ll need to stick to your guns based on your reasons for closing the card.
Since we’re here, let’s review some good reasons to close out a credit card.
- It tempts you to spend more than you can afford
- Protecting yourself from authorized users
- Annual fees and monthly maintenance fees
Any one of these can be good reasons to close out your credit card. Keep in mind your utilization ratio, i.e. how much credit you’ve used versus how much you have available, as well as how long you’ve had the card you intend to close out. Both factors are considered in your credit score, and closing a card prematurely can have a negative affect on your score.
Anyway, once you’re certain that you’d like to close the account, the best thing to do is make sure you politely let the representative know that while you appreciate their offer, you’d just like to close the card. Creditcards.com doesn’t suggest this, but I do…always ask for written confirmation that the account has been closed. This way you know that the representative you spoke to did take care of the request and it was reported correctly to the credit bureau. Also, make sure you follow up. If you didn’t receive the letter, call and ask about it. Make sure you check your credit report, as well.
# 4 – Write a letter
What was mentioned in the article I read was that you write a letter to the credit card company. In addition to making the phone call requesting the lender close the card, it’s a good idea to write a letter requesting they close the card and include details of previous phone conversations, as well as a copy of the cleared check that shows the card was paid off.
I’m of the opinion that this step may be excessive and unnecessary – unless you are having trouble the company. However, I’ve always found that anytime I close a card, requesting written notification of completion from them was sufficient enough. Why should we have to do all the work? It’s already our responsibility to make sure they report it correctly to the credit bureau, so I think asking them to write a confirmation letter is perfectly reasonable.
# 5 – Be patient…and diligent
Ok, the last bit was mine. The article says that you should be patient as a card closing could take up to a month. I think that’s a long time and in this electronic day and age, I would think the account closure would happen immediately. However, I think if you’re waiting for the letter to come to you, then yes, a month is a good time frame.
But, I think in this tip, it’s far more important to stress the fact that you must be diligent in following up with this. It is your responsibility to make sure that the account closure was reported to the credit bureaus correctly. It is your responsibility to follow up with written communications. Don’t just take for granted that the representative will do what they said they would. In a perfect world, you wouldn’t need to be concerned with it, but in reality, things fall through the cracks. It’s your credit, protect it.
# 6 – Take notes
I talked about this at the beginning. Write down the date, time, and names of the people you spoke to. That way, if there’s something that was done incorrectly, you have the facts recorded. Having the time and name of the individual is good information, particularly if the company you’re dealing with records calls. This makes it much easier to find the call in their logs if it is needed to settle a dispute.
Overall, I think these are excellent tips, but I don’t really see how they help prevent a negative impact to the credit score. There’s still the utilization and time factor to consider that are going to affect the outcome despite following the above tips.
Of course, the first step to not hurting your credit score is knowing what it is! Check out this page for info on getting your free credit score and credit report.
Anything else you want to add to the list?