7 Things You Need to Know When You Cancel a Credit Card

As satisfying as it may be, cutting your credit cards into tiny little pieces with a pair of scissors is not the same as canceling your credit card! While people commonly cancel their credit card(s) in an effort to get out of debt and prevent themselves from falling into credit card debt again in the future – it can actually hurt your credit worthiness to close your accounts completely.  Closing credit card accounts lowers the amount of available credit you have; and it increases the amount of debt you have in relation to the amount available – both factors used in calculating your credit score.

If you are considering canceling your credit card(s), consider the following seven things:

1. If you intend to make an expensive purchase in the somewhat near future, don’t cancel credit cards. Canceling credit card accounts often results in a lower credit score temporarily, and can make it harder to obtain credit for other purchases.
2. When you do cancel a credit card, be sure to request the company reports it to the credit bureaus as “canceled by customer’s request”, otherwise it could appear to future lenders viewing your credit report that your accounts had been closed by creditors who couldn’t get their money from you!
3. Avoid closing credit cards that have balances.  When you cancel or close a credit card account that still has a balance owed, the credit card company could raise your interest rate to the maximum interest rate limitations for your state as a penalty for closing the account with a balance.
4. If you are looking to cancel credit card accounts because you have too many open accounts, look at options for balance transfers instead.  Moving money to your lowest interest credit card is an effective way to pay less in interest, and reduce the number of payments you must send each month.  Once you move balances from a credit card to another card, you might consider closing the cards without balances (or just leave them open and unused if you don’t have a problem with having too much available credit showing on your credit report).
5. When canceling credit card accounts, request written confirmations of the cancellation from the credit card company.  Remember where you file this document as it will come in handy if you one day receive notices from the account of finance fees and such for an account that’s not being used and hasn’t been closed!
6. If you can’t seem to keep your hands off your credit cards when the urge to buy something comes up, canceling your cards may be in your best interest even if your credit score takes a temporary hit.  It beats the alternative of getting further and further into debt with irresponsible credit card use which will create an even lower credit score.
7. When you call to cancel a credit card, if you’ve been a decent card customer don’t be surprised if you are transferred to the “cancellation department” or other specialty department.  The representative you speak to will likely attempt to convince you not to cancel the account by offering you special incentives for sticking around.  If the incentives interest you, you might consider negotiating even better deals – if not, don’t be afraid to insist on closing the account despite what could become pushy sales tactics.

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This entry was posted on Tuesday, December 30th, 2008 at 5:37 am and is filed under Debt & Consolidation, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.