How To Easily Close A Credit Card Without Ruining Your Credit Score
Though closing credit cards typically isn’t recommended because of its potential impact on your credit score, there are definitely situations when it’s your best option. For example, maybe you have a lot of credit cards and that makes it difficult to keep track of your spending. Or maybe you signed up for a credit card with a great (or no) interest rate or annual fee, and the company’s policy has changed, putting you at a financial disadvantage.
And though there are plenty of scenes in ‘80s and ‘90s sitcoms where an overspending (and let’s be honest, stereotypically female) character simply cuts up her credit cards and is suddenly free from the temptation to shell out money on a new pair of shoes, in reality, closing a credit card isn’t that straightforward. If you’re wondering what the best approach is, you’re not alone. In fact, according to the latest search data available, info on how to close a credit card is looked up nearly 4,400 a month. There are plenty of factors to consider in your decision, like redeeming awards, paying off debts, dealing with authorized users — and yes, your credit score. Here’s what you need to know about how to safely close a credit card.
Closing a Credit Card and Your Credit Score
Before we get into exactly how to close a credit card, let’s talk about how doing so may impact your credit score. You might think that closing credit cards you don’t need anymore is the financially responsible thing to do, and while that may be the case for you specifically, you’re usually better off keeping your accounts open. Part of the reason for this is that your repayment history is a big part of your credit score. So if you’ve been good at paying your credit card on time, keeping your account active can help you stay in good standing, according to U.S. News and World Reports.
Another important part of your credit score is your credit utilization ratio, which looks at the amount of credit you have versus the amount you’re using. “Closing a credit card can have a negative impact because you lose the value of the unused credit limit, “ credit expert John Ulzheimer, formerly of FICO and Equifax told U.S. News and World Reports. “If your debt represents a larger percentage of your credit limit, this can result in a ratio spike and a lower score.”
How to Safely Close a Credit Card
So, you’ve decided to go ahead with it and close a credit card. Now what? Here are a few simple steps to help walk you through the process.
Find Out Exactly How Much You Owe
Yes, you’re going to want to pay off your credit card before closing it, but it may not be as straightforward as just paying off your bill. Contact your credit card company and ask for your payoff amount. This not only includes any remaining balance, but also any interest and fees you’ve racked up. It’s also worth noting that unless you hand over the entire payoff amount, your card will maintain a balance, and interest and fees can continue to accrue.
Use Any Rewards You’ve Earned
If your card came with any points or rewards program, make sure to cash in on anything you’ve earned so you don’t lose them. In some cases, you can even use your rewards earnings to help pay off the balance on your card. If you have any questions — especially about co-branded travel cards where you earn airline miles — check with your credit card company to see if you’re able to transfer them. You’ve already spent the money — you might as well reap the benefits.
Update Your Automatic Payments
Now that so many of our monthly bills are on autopay, it can be easy to lose track of which credit card is covering which utility. If you’re closing a credit card, make sure to update your information on any accounts that have a recurring automatic payment tied to this card. That way you won’t be hit with unexpected late fees or other penalties.
Tell Your Authorized Users
If you have any authorized users on your account — like a partner, parent, or child — let them know that you’re going to close the account. It’s common courtesy and will help avoid an embarrassing situation where their card is declined. And just to clarify: an authorized user isn’t the same as having a joint account with someone. If you have an account with an authorized user, you are solely responsible for any charges — even ones the other user racked up.
A note for authorized users who may want to remove themselves from the account: According to Experian, doing so is extremely easy. However, it may have consequences for your credit score: “The account will no longer appear on your credit report, and its activity will not be factored into your credit scores. That also means that your length of credit history, which constitutes 15% of your FICO® Score, will be affected. In other words, if the credit card you were attached to was the oldest account on your report, your credit history will be shorter without it.”
That said, that may be a worthwhile change if the main credit card holder was mismanaging the account and thus affecting your credit.
Get Rid of Your Balance
Whether you pay the credit card off entirely or transfer the balance to another card, you’re going to want to make sure you don’t owe anything on the account. And don’t just assume it’s all taken care of after you’ve made what you think is your final payment: follow up with your credit card company to make sure that everything is squared away before officially closing the card.
Close the Account & Get Rid of the Card
That should be it! Once you’ve reached this point, contact your credit card company and let them know that you’d like to close the account. They might try to talk you out of it but obviously this is your decision. Make sure they note that the account is being closed at your request so it won’t seem as though your account was closed by default or by the lender. Ask them to send you a letter confirming this and keep it on file in case there are any questions in the future. If you spoke to a representative who assured you the account is closed, you can still confirm on your end by sending a letter notifying your lender of your desire to “closed at consumer’s request.” Include your name and address as well. And yes, after you’ve officially canceled the card and receive confirmation of this, you can have your sitcom moment and cut the card up with scissors or put it in a heavy-duty shredder.
If your card is metal instead of plastic, like in the case of American Express cards, don’t put it in your shredder unless you want a broken shredder. Instead, reach out to your lender and ask for a prepaid envelope. Once you send it back your lender will dispose of it safely. That’s it, you’re done.
What if You Have a Credit Card You Don’t Use?
We all have those credit cards collecting dust in our wallets or drawers. And while it’s usually fine not to use a card, there are some risks you should be aware of, anyway. First, out of sight, out of mind also works for credit cards. Not using a card as often means you also don’t check out the monthly statements or log in to the card’s mobile app, leaving yourself open to potential fraud you catch too late or never at all.
You also run the risk of having an inactive card closed on you by the lender. That’s right, you didn’t think this was a one-way relationship, did you? Though rare, credit card companies can close inactive cards at their discretion, which can slightly impact your credit score. Most companies will send a letter warning you of an impending closure in the mail. So if you don’t want the card closed, you can put a charge on it.
Making Some Big Money Moves?
If you are looking at closing a credit card, you are probably in the midst of making some other major financial decisions, as well. We are here to help, Mama. There are some easy but important steps to take if you are trying to pay off debt. And if you are trying not to spend money at all? You need a budget, or maybe even just a holiday budget. Finally, as you work your way through your new financial plan, you are probably dealing with a ton of paperwork. Wondering what you need to save and what information and what you can shred? We know exactly how long you should keep all your important papers. (And even how to store them.) While you are at it, Mum, how about looking at some long-term financial options like annuities, retirement or even life insurance. (Yes, life insurance is a financial matter.)
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