You might think canceling a credit card is as easy as cutting it in half or putting it through the shredder. While it might be that easy to physically keep you from using a credit card, there is a lot more that goes into canceling a credit card than just physically disposing of the card.
First and foremost, it is important to know that canceling a credit card can negatively impact your credit score. Closing a credit card increases your credit utilization rate, which is the percentage of credit you have used. If you close a credit card you can be at a higher risk of overspending or maxing out on your remaining cards.
Additionally, canceling a credit card can also have an effect on your credit age, which is based on how long you have owned and paid off your credit cards. The longer you have done this, the higher your credit age, which is beneficial to your credit score if you have a good track record of paying off your balance. This means it is important to avoid canceling the credit card you have with the highest credit age or the one you have had the longest.
Before cutting up the credit card you do wish to cancel you should follow several steps to ensure you cancel your credit card the right way.
The first thing you should ask yourself is whether or not you really have to cancel your credit card. Keeping your account open and not using your card is a viable option to help you avoid damaging your credit score. If you feel your credit card has high-interest rates and fees or that you have trouble avoiding overspending each cycle, then canceling the card would be your best option.
Before you call your credit card company to cancel you should first make sure all of your balance is paid off and that you have redeemed any available rewards.
You must pay off your balance simply because you will not be allowed to cancel your credit card if it is not paid off. It may help to ask the credit card company to freeze your account to avoid any other things being charged to it so you can effectively clear your account.
Many credit cards are associated with redeemable awards based on usage, where you spend money, etc. Check out your card’s redemption instructions and cash out your rewards so you do not miss out on your free money.
The next and biggest step is to call your credit card company and close your account. Double check to make sure you balance is zero and then tell them you would like to cancel your card and make a note that the account was closed at the “consumer’s request.” Be sure to ask for a written confirmation that your credit card account was closed.
Sometimes it is a good idea to follow up with a written cancellation letter to your credit card company. With your personal info and credit card account information request to close your card at the “consumer’s request,” as you did on the phone.
It may take a month or two for your account to fully close so any changes in your credit score should be temporary. If you are having problems with your credit, closing a credit card, or dealing with credit debt then you should consult an experienced attorney.
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The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney/client relationship. If you are seeking legal advice, please contact our law firm directly.