Are you thinking about closing one or more of your credit card accounts? Before you close your account, you should know how this action might affect your finances, spending habits, and overall credit history.
If you’re looking for the best information about how to close your credit card and avoid common credit history mistakes, you’ve come to the right place!
How Do You Completely Close a Credit Card Account?
There are a few steps you want to follow when you decide to close your credit card. To cancel your credit card completely, follow the steps below.
1. Stop Using Your Credit Card Account
When you are thinking of closing credit card accounts, you first want to stop using those cards. If you close a credit card but still have a few pending transactions, you are still responsible for paying off that debt; even after the card is closed. To make things easier on yourself, you should stop using your credit card as soon as you decide you want to close the account.
2. Pay Off Your Remaining Balance
The next step is to pay off your credit card balance. If you have a zero balance when you close your credit card, you won’t have to worry about making any additional payments on that particular account.
3. Use Any Rewards Points or Perks
Before you officially cancel a credit card, use up any reward points or perks you have available. With some credit card issuers, customers lose access to their rewards as soon as they close their account, even if they have available points or benefits to use. To avoid losing out on any rewards you’ve earned, use them up or transfer them to an alternative account before closing a credit card account.
4. Stop Any Recurring Payments
If you have subscriptions, bills, or any other financial obligations tied to your credit card account, remove them. You run the risk of having missed or late payments if you forget to disconnect your old credit card from accounts tied to your canceled credit card. These missed or late payments may negatively impact credit scores and cause other inconveniences in your life.
Save yourself the hassle and remove your credit cards before canceling the account and replacing it with a new payment method.
5. Contact the Credit Card Company
Next, contact the credit card company and inform a customer service representative that you would like to close your credit card account. From there, they will either walk you through the cancellation process over the phone or point you in the right direction where you can cancel your credit card online.
6. Get Written Confirmation
To make sure you have proof of your credit card account closure, it is a smart idea to get an official cancellation letter from your credit card issuer. A certified letter will act as evidence of you canceling your credit card.
Some credit card companies require certified letters in order to close certain credit accounts successfully, but not all do. To stay on the safe side, you should request a certified letter of cancellation from your credit card issuer, whether they require one or not.
7. Check Your Credit Reports To Confirm Your Closed Account
Check your credit report to see proof of the account closure. Your credit card cancellation will be reflected in your credit utilization rate, credit mix, and potentially a few other factors on your credit report. If you do not see proof of canceling your credit card account on your report, contact the credit card company to confirm they have correctly reported your account closure. If need be, you can use your certified letter of cancellation to prove your account should be closed.
8. Physically Dispose of the Canceled Credit Card
Lastly, after you see proof of your closed credit card on your credit reports, physically destroy the card. Simply throwing unused credit cards in the recycling or trash puts you at risk for identity theft. To prevent potential thieves from messing with your finances, cut up or shred your canceled card after closing your credit account.
Does Voluntarily Closing a Credit Card Hurt Your Credit History?
Does closing a credit card affect credit? The answer is yes. Depending on the circumstances surrounding your credit card, you may see a slight or significant difference in your credit score after closing your account.
Your credit score and credit history are important; they contain factors that financial institutions look at when they approve borrowers for lines of credit or other forms of funding. Credit card companies report this information to credit bureaus when you close a credit card. Then, that credit bureau will ensure the action is reflected on your following credit report. The three credit bureaus are Experian, TransUnion, and Equifax.
I Paid off My Credit Card Accounts and Closed Them; Why Is There Credit Score Damage?
Usually, if you pay off your credit card your credit may go up. If you have a significant amount of credit card debt and manage to pay it all off at once, chances are you will see a score increase on your upcoming credit reports. However, there are a few circumstances where closing a credit card may cause a decrease in credit scores.
For example, if the closed account was previously your oldest credit card account, you may see a dip in your score. Account history and how long people have had active financial accounts contribute to credit scores. So, when you close an account that was adding to your account history, you may see this action negatively impacting your credit report.
Furthermore, your credit utilization ratio may also be at risk if you close your credit card. Suppose you had two credit cards, both with a $1,000 credit limit. If you had a balance of $1,000 on one card and a balance of $0 on your other card, your credit utilization ratio would be 50%. If you closed the credit card account with the $0 balance, your credit utilization ratio would increase to 100%! Such a sudden increase in your credit utilization ratio may cause significant damage to your credit history.
Lastly, credit mix is another aspect that may affect your credit report. Your credit mix consists of the different types of financial accounts you have. Typically, it’s best to have a variety of credit accounts. If you closed a credit card that was one of your only revolving lines of credit, your mix of credit might suffer a bit.
When Should You Consider Canceling a Credit Card?
Before making anything final, make sure you are positive that you want to close your credit card. If you close your account and then decide you want the additional funding, you’ll have to go through the credit card application process again. Not only is that inconvenient, but it may also negatively affect your credit. How often you apply for new credit cards and other lines of credit has the potential to affect your credit score. Another action with the potential to affect your credit history is how often you apply for loans, like an online payday loan.
But sometimes, closing a credit card is the right decision. Below are some circumstances which may result in customers wanting to close their credit card accounts.
Financial Circumstances Have Changed
Financial circumstances can change at any time. If those changes have you feeling unsure about your credit card, you may consider closing the account. Perhaps you had a joint credit card with a partner or spouse, and you are now going through a divorce or separation. In that case, you may want to close the joint account and start keeping your finances separate.
Credit Card Benefits Have Been Altered
Sometimes, a credit card company may alter the card benefits they offer. These alterations may result in an annual fee increase or other account changes. If your annual fee increases too much, you may be worried about affording the costs.
You Cannot Resist the Temptation To Use Credit Cards
Online shopping can certainly be additive and may also lead to crippling credit card debt. If you find yourself unable to resist the urge to use your credit card to shop online, or make other unnecessary purchases, closing your account may not be a bad idea. To avoid interest rates causing your minimum payment to become unaffordable, you may want to cancel your card before your spending gets too out of hand.
Alternatives to Credit Card Canceling
Sometimes, canceling a credit card may be the wrong choice. To avoid potential damage to your credit, you may want to consider some alternatives to credit card canceling. Below are some other things you can do if you don’t want to cancel a credit card.
Get a New Credit Card Product With the Same Issuer
If you want to cancel your card because you can no longer afford the high annual fees or other changes made to your account, talk to a customer service rep. Credit companies typically don’t want to lose customers, so they may be willing to adjust your annual fee or give you other perks so that you keep your account open!
Adjust Your Budget, so You Don’t Rely on Your Credit Card
If you use your credit card for everyday purchases, your balance may quickly get out of hand. Instead of using your credit card for recurring purchases, use it only for financial emergencies when there are no other options. When you use your current available funds instead of a line of credit to make your regular purchases, you may end up avoiding unnecessary or extravagant spending.