How to cancel a credit card
-- the right way
a right way and a wrong way to do things, and that goes for canceling
a credit card.
Whatever your reason for getting rid of a credit
card you'll want to make sure you do it thoroughly and that no harm
is done to your credit report..
First, don't try to cancel a card while you're
paying the balance. Cancel the card only after you have paid off
the balance in full.
"There isn't a need to cancel that account
until you're through with it," says Jean Brannan, community outreach
coordinator for Consumer
Credit Counseling Service in West Palm Beach, Fla. She adds
that you have to employ self-discipline and stop using a card while
you're paying off the balance.
OK, let's say you have paid off a card's balance
and you want to cancel the account. Brannan suggests that you do
the following, in order:
- Notify the card issuer by phone.
- Follow up by notifying the card issuer in
- Get a copy of your credit report and make
sure it's accurate.
- Repeat, if necessary.
Notify the issuer by phone
Your issuer's customer-service number will be printed on
the back of the card, on the monthly statement, or both. Call that
number, confirm that your balance is zero, and notify the customer-service
representative that you're canceling the card.
Do not call to cancel a card if you still have
a balance. If the card issuer knows you are thinking about leaving,
it could raise your interest rates to the maximum allowable by law
as a penalty for closing the account, if you do so with an outstanding
Some companies will allow you to cancel a card
without even talking to a customer service representative. Others
will transfer you to a special department for the sole purpose of
trying to convince you to not cancel your card.
Steve Rhodes, past president of Myvesta.org,
a financial crisis treatment center, suggests you spend a little
time listening to the representative. They might be willing to lower
your interest rate, offer a two-for-one airline ticket, or upgrade
your standard card to platinum. Carefully consider the ramifications
of keeping the card open. If you are in the process of reducing
the number of credit cards you carry, then cancel a different card.
If no such offers are made, or appeal to you,
then go ahead with the cancellation and do not allow the representative
to convince you otherwise.
Follow up with a letter
Write a short letter to the card issuer. "If you can get
a name so you can send it directly to someone, that is better,"
The letter should say that you're closing your
account and that you want your credit record to reflect the fact
that you requested that the account be closed. Provide your name,
address and account number.
Send the letter by certified mail or return
receipt requested. That way you can prove that the card issuer received
your letter, Brannan says.
Then, wait a month.
"You can allow as much as 30 days for the closing
of your account," Brannan says. "Then get a copy of your credit
report and make sure it says 'closed at customer's request' and
that (the account) actually has been taken off your credit report."
Check your credit report
You don't want your report to say the account was 'closed
by creditor,' because that reflects negatively on you.
If the card issuer mistakenly reported that
the issuer, not you, closed the account, you'll have to return to
the beginning. Call the customer-service department to report the
mistake, follow up with a letter sent by certified mail (include
a copy of the letter you wrote requesting that the account be closed),
and check your credit report again.
"Remember that a credit report is your credit
history," Brannan says. "The information is submitted by lenders,
but it's your individual responsibility to make sure it's correct."
Believe it or not, it's not the credit bureau's
responsibility to make sure that your credit report is correct.
Credit bureaus report what creditors tell them. So if your credit
report is inaccurate, don't ask the credit bureau to fix it. Ask
the creditors to correct inaccuracies and update the credit bureaus.
Experts recommend that you check your credit
report annually to spot inaccuracies and detect identity-theft problems.
Check your credit report before buying a house or car so you can
correct any problems before applying for a loan.
Why not to cancel
But not everyone should start canceling all kinds of credit
lines. If you're planning to buy a house or car soon, you might
want to hang on to your unused credit lines until after you've qualified
for a loan.
"If your goal is to improve your credit
score, closing accounts is not a good tactic," says Craig Watts,
consumer affairs manager for Fair, Isaac and Co. based in San Rafael,
Calif. "paying down credit cards is terrific. Closing them
is not going to help."
Canceling a large amount of unused credit could
actually hurt your credit score.
Credit-scoring models look at a number of factors
when calculating your score including the result of the following
formula: The total amount of debt on credit cards and revolving
accounts divided by the total amount of debt available on those
This formula results in a fraction less than
one. The lower the fraction the better. A score of one would mean
your outstanding debt equals your available balance and you've maxed
out your cards.
Let's look at an example: Lets say you've got
$5,000 of debt and $15,000 in credit lines. By dividing 5,000 by
15,000 you get on-third. You're using one-third of the credit available
Now let's say you cancel an unused credit card
with a $5,000 limit. You've still got $5,000 of debt but only $10,000
in credit lines. By dividing 5,000 by 10,000 you get one-half. You
are now using one-half of the credit available to you.
The closer to one this fraction gets, the more
it hurts your credit score.
"When you cancel unused credit cards without
paying down your credit debt, you change that ratio so it appears
as though you're closer to being overextended," Watts says.
The best advice for a home or auto shopper is
to hang on to credit lines until after you've landed your loan.
"Wait until you've been approved for the
loan and have the money in hand and then start closing accounts,"
If your credit card balance is zero, go ahead
and close as many unused accounts as you want. As long as your credit
cards are balance-free, it won't hurt your credit score a bit. So
call those card issuers and cut away.
If you're in credit trouble or if you had credit
problems in the past and you know an open credit line is just going
to temp you to spend -- go ahead and close the account.
Yes, it might ding your credit score a bit.
But if it will keep you from acquiring more debt, it's best to do
it. You can worry about building up your credit score after you're
back on your feet financially.