There's a right and wrong way to break up with your credit card company
How to Close a Credit Card Account
by Bill Hardekopf
Should You Break Up With Your Credit Card?
10 Reasons for Canceling Credit Cards
Before Canceling a Credit Card
Cutting up a credit card may prevent you from using it, but it doesn't cancel the account. In order to do that, you have to contact your credit card company and make sure the account is closed. This isn't always a good idea, but sometimes it is necessary to control your spending habits and minimize annual fees. If you're going to close your account, you need to do it properly.
How Closing Credit Accounts Can Hurt Your Credit Score
Before you consider closing a credit card account, you need to think about the negative impact this will have on your credit score. There are several factors that go into determining your credit score. One of them is the amount of debt you have compared to the amount of credit available for you, sometimes referred to as debt utilization. If that is 30% or less, you are in good shape. Anything more than that could hurt your score.
Let's assume you have a total of $10,000 in available credit between all of your credit cards, and you only have balances totaling $3,000. If you close an account with a $2,000 credit limit, your debt utilization is going to go from 30% ($3,000 out of $10,000) to 37.5% ($3,000 out of $8,000). That puts you in the danger zone. If you don't have an annual or monthly fee to pay on the card, it may be better to keep the card.
When to Close a Credit Account
If you cannot control the spending on your card, you may need to get rid of it. Yes, this could hurt your credit score, but so will massive piles of debt you keep accumulating. You may take a short term hit for the long term goal of protecting your finances.
If you have high fees on a card you never use, you might want to cancel it as well. Otherwise, you're paying money for no reason. Keep in mind that you may be able to reapply for a card with a better interest rate and lower fees if you are in good credit standing with your credit card company. Contact your credit card provider to explore this option.
What to Do Before You Cancel
Make sure you have paid off your card balance in full, including fees that may have shown up since you last checked your payment. Look over your terms of agreement to see if you have a cancellation fee. If you do, you will need to cover that at the time you cancel the card.
Use any rewards points or cash back you have on the card before you cancel it. Once you get rid of your account, you won't be able to access any of the rewards that you have accumulated. It may take a few days for these rewards to process, so wait until they fully clear before closing the account.
Contact the credit card company to see if there are any other cards you might be eligible for without having to actually cancel your current line of credit. If they can transfer you to a different card, you may not have to damage your score.
Would you like to
pay off your credit cards
in less time
for less money?
How to Close a Credit Card Account
With all of the preparations in place, you will need to contact your credit card company to request a cancellation. You will probably pass through a few different representatives who will try to convince you to keep your account. They may offer bonuses and other incentives to make you stay. It's up to you if those incentives outweigh your original reason for cancelling.
Once you have finally completed the cancellation process over the phone, wait a few days and call the credit card company. Reconfirm that your account has been cancelled, and request a cancellation verification to be sent via email or letter. This will ensure that no one else uses the account without your permission because it will no longer exist.
Knowing how to close a credit card account the right way can save some unnecessary fees and a lot of headaches. Try to maintain your current accounts in good standing. The longer you have your accounts open, the better your credit score will be.
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
Take the Next Step:
- Find out how you can pay off your credit cards in less time for less money.
- Keep your finances on track by visiting our money section each week. We are always finding new ways to help you with your finances.
- Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
Share your thoughts about this article with the editor.
Debt from my past is preventing me from saving for my future! Tell us: Yes, debt is hindering my ability to save and I could use help dealing with it! or No, debt is not a problem but I am trying to get ahead financially!
More Money Tips & Tools
- 5 low-risk ways to earn higher interest now
- 10 easy ways to save money for the holidays
- 7 IRA withdrawals that don't trigger a penalty
- 4 secrets to maximize your credit card rewards
- Don't toss your financial resolutions just yet!
- How and why to put your legal and financial affairs on autopilot
- 18 ways money slips through your fingers
- This week's Readers' Tips