Closing a credit card account can be a little daunting, especially if you’ve never done it before. There’s actually quite a lot that goes into closing an account , and missing a step can be costly! Before you close that credit card account, read through this do’s and don’ts list so you know just what you should and shouldn’t do.
Figure out how it will affect your credit score first
Sometimes closing a credit card account will have a positive effect on your credit score, but this isn’t always true. It’s actually good for your credit score if you have one or two revolving credit accounts open, especially if you are great about keeping the balances on those accounts low. However, if you have too much credit available, you will be considered a higher credit risk, and your score will suffer accordingly. Before you decide to close any of your credit cards, do some research about which accounts you should close and which you should leave open.
Clear the balance
The best way to clear the balance on an account is to simply pay it off. However, if you really need to close an account and can’t pay off the balance right away, you could consider doing a balance transfer with one of your other credit card accounts. Just make sure the balance is at $0 before you call to cancel the account.
Find out about possible penalties
Some credit card companies have early closure penalties or other penalties that can affect the closure process. Read the fine print in your credit card agreement to find out about these before you close the account.
Make sure you have collected all your rewards
Don’t forget to collect airline miles and other rewards you might have racked up on your card. Even if you think you don’t have any rewards to collect, it’s best to double check! Once the account is closed, those rewards may automatically be lost to you forever.
Credit card companies want your business, so representatives can be a little pushy when you call to cancel a card. If you have done the research and are positive that closing a certain account is in your best financial interest, though, be firm with the representatives. You don’t owe them an explanation or apology. Remember, you are the customer, and you are in charge of your own credit card accounts!
Cancel automatic payments that come off of the card or go to the card
If you have an account that automatically makes payments to a credit card company, cancel those payments before you cancel the card, just in case. Sometimes you need to give the bank a week or two’s notice before you can be guaranteed that the next payment won’t be sent automatically, since it can take time for the bank top process the cancelation paperwork.
Besides this, if you have payments that are paid by the credit card company automatically, make sure you get those canceled, as well. Transfer the automatic payments to your debit card or checking account, or at least write them on your calendar so you don’t forget about them once your card is no longer automatically paying them for you.
Destroy canceled credit cards
Once you have canceled a card, make sure you destroy it. At least put it through a shredder, but you can always get a little more creative and blow the card up or something. The goal is to make sure that the information isn’t available, as it could still be used by identity thieves to hack your accounts.
Forget to get written confirmation and keep it on file
It’s absolutely essential that you get written confirmation that your card is canceled and has no balance. When you’re on the phone with the representative, get a number that will let the company access the information about your call later on if your confirmation doesn’t get to you in the mail. Most customer service departments these days with automatically give you such a reference number, but if not, ask for one.
Once you get the written confirmation of your cancelation in the mail or by email, keep a copy of it in your files. Sometimes mistakes will happen, and credit card companies may try to come after you for charges on an account that you’ve already closed. Having the written, dated confirmation on file is your protection in such a situation.
Close your longest-standing credit cards
When you’re choosing between which accounts to close, you should definitely opt for leaving your one or two longest-standing credit cards on file open. Not sure which cards these are? Pull a copy of your credit report, and compare the opening dates for various credit card accounts.
Because a large percentage of your credit score is based on how long you have maintained a credit history, leaving your oldest accounts open is a good idea. Even if these accounts have a slightly higher APR, you can just use them minimally while paying off the balance each month to benefit from the earlier opening date on your credit score.
Leave it to chance
Don’t assume that a credit card account will be canceled for you when you pay the balance down to zero. Even if you never use a card once you get it, you could still owe some maintenance fees on the card. Besides, a credit card company won’t close the account for you automatically! You have to be proactive about closing the accounts that you want to get rid of.
Assume it’s off your credit report
After you close a credit card account, it’s a good idea to pull a copy of your credit report two or three months later to make sure that the account is marked closed on your report. If not, call the credit reporting company and the credit card company to get the information up to date as soon as possible.
Using these easy do’s and don’ts, you can close your credit card accounts properly. Just make sure you’re using the credit you do have wisely, and you’ll build a better financial future for yourself.
Daniela Baker, blogs on CreditDonkey about credit card applications and deals. She welcomes your comment and looks forward to you visiting her blog.