How to Close Credit Card Accounts and Preserve Your Credit Score
Simply cutting up your credit card, or locking it away in a box in the closet, is not actually closing a credit card account. Pulling out the scissors doesn’t send a magic signal to the company to close the card; the account still says open.
How do you go about closing a credit card properly? There are many ways to do it incorrectly, resulting in the account staying open, but very few ways to properly close it.
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First Determine If You Really Need to Close Out the Credit Card
As with every decision regarding your credit, you need to make sure it’s the right choice for your situation before you do it. Making the wrong choice in a hard situation could either slow your credit growth, or actively hurt it. So before you start the process of closing the card, make sure that it’s the right decision for you.
For example, let’s say you have a single credit card and a poor credit score. Credit cards are a good way to consistently add positive items onto your credit report, and if you have only one card (and a poor credit score) you might have a hard time getting a new one. In this case, canceling the credit card is not a good idea as you need to use it to grow your credit.
In most situations, closing a credit card isn’t necessary. If they are paid off, simply having credit cards won’t hurt your credit, in fact they might be helpful. Having those accounts open gives you extra available credit on your credit report, which can actually help your score. If you are afraid of overspending with a credit card, you can always cut up the card and leave the account open.
Now, there are a handful of reasons to cancel a credit card. If you have to pay regular fees on it but don’t get your money’s worth from the card, get rid of it. Another reason is if the original card holder has passed away, the card should get cancelled to prevent identity and credit card thieves from getting their hands on it.
Review Your Credit Report
A major decision impacting whether to cancel your credit card is going to be your credit report. Having a good understanding of your credit report is always a smart idea, but especially when deciding to close a credit card. That way, you’re informed about your situation and what impact canceling a card can have.
Make sure you understand your credit utilization ratio, and your credit mix before you get rid of your credit card. Canceling a card can impact all of these aspects, which could hurt or help your credit score, depending on your situation.
Get Outstanding Balances to Zero
You can’t cancel a credit card that you owe money on. Before you can close the account, you have to get any outstanding balances to zero.
Now, there are two ways to get that balance eliminated off the credit card. The first, is to pay it off, including any fees you have incurred. Pay the debt you have, plus recent charges, so you don’t owe the company anything. Then, you can close the account.
The other method is to move the debt from one credit card to another. This will put the outstanding balance on the card to zero so you can cancel it, but you will still need to deal with the debt. A smart idea is to move the debt to a new card with a lower interest rate, or as an effort to consolidate your debt.
Contact Your Credit Card Issuer
Each credit card issuing company has their own methods for canceling a credit card. Some require a phone call, others can be canceled online, a few even need a written letter from you. Research what process you need to do in order to close it out, and then follow through.
Be aware that many credit card issuers don’t want you to cancel, and will try their best to convince you against it. That might mean going through customer service that will give you reason after reason not to. Be ready to push through a hard sales pitch on why to keep the card.
After that, follow up a few days later to make sure the company actually closed the account. Get solid confirmation that it’s closed, in print, either emailed or mailed to you. That way, if something fishy happens in the future, you have proof that they said they closed it.
Keep an Eye on your Credit Score
Anytime you make a big change regarding your credit, you should monitor your credit score. Cancelling a credit card shouldn’t have a massive immediate impact, so if it does, investigate what happened. Monitor your credit score for the next several months to see if you start to trend upwards or downwards. If it does start going negative, takes steps to reverse that, which might include opening a new credit card, or re-open your old one, and using it responsibly.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated February 28, 2019. It was originally published June 26, 2018.