How to Cancel Credit Cards the Right Way

Thursday, September 4, 2008

If your goal is to improve your credit score, closing credit card accounts is not going to help. However, there are various legitimate reasons for closing credit lines. For instance, if you already have credit problems and you know that an open credit card will only tempt you to max it out, then it might be a good idea to go ahead and close the account. You can't solve your credit issues if you are still spending more money than you make. Yes, your credit score will take another small hit when you close the account, but it's more important to stop acquiring additional debt.

Sometimes consumers become so disgusted with the customer service provided by a credit card issuer that they may vow to close an account and never use that particular company's products again. If the credit card happens to be the oldest in your wallet, you may want to reconsider this decision. Length of credit history accounts for a large portion of your credit score, so closing your oldest account could immediately have a negative effect. A better option might be keeping the account open and simply not using it anymore for regular purchases. If it's not your oldest card and you can't stand to do business with them for one more day, then go ahead and close the account. It's a matter of principle now, right?

Whatever your reason for canceling a credit card, you'll want to make sure you do it the proper way. Follow these five steps to cancel a card while minimizing the negative effect on your credit score and ensuring the credit card company gives you exactly what you want. Happy canceling!

1. Cut up the plastic

Why keep the card around any longer? If you decide to close the account, it's time to get rid of the credit card. Cut it up into tiny pieces, shred it, or do whatever you want to make it unusable. Remember to at least keep all the important information on the card such as the account number, expiration date, security code, and customer service number. The account is not closed just because you cut up the card, so you will likely need this information along the way.

2. Pay off the balance before canceling

Don't cancel your card if it still has a balance. Your objective is to the close the account at your will with a balance of zero. Closed accounts with a remaining balance reflect negatively on you, so take the time to pay off the balance before moving to the next step. You already cut up the card, so you shouldn't be tempted to continue spending and increasing your debt.

3. Notify the credit card issuer by phone

Now that your balance is zero, it's time to call the credit issuer and give them the bad news. Call the customer service number you found on the back of the card, confirm that your balance is zero, and firmly state that you want to cancel the card. Be prepared to answer some questions and get transferred to a specialist who will try to change your mind. They may even make an appealing counteroffer, so listen if you want. If nothing sounds too promising, be firm and don't let them fast talk you into leaving the account open.

4. Follow up with a letter to the issuer

This doesn't have to take much time, but it's an important part of the process. Write a simple letter to the credit card issuer that includes your name, address, and account number. State that you are closing your account and you want your credit record to indicate that you requested the credit issuer close the account. If your credit report eventually shows the account was "closed by creditor", that will hurt your credit score. This shouldn't happen, but data entry mistakes are made more than you would expect in the credit industry. Send the letter by certified mail, so you have proof of receipt, and wait to receive a response from the credit issuer.

5. Pull your credit report to verify the cancellation

You should receive a letter in the mail from the credit issuer verifying the cancellation. If not, wait a few more weeks and then pull your credit report to make sure it indicates the card was "closed at the customer's request." If nothing has happened or the report indicates the account was "closed by creditor", you will need to start over at step 3 and call the credit card issuer's customer service number to explain the situation. Since you have documented everything along the way, you will be in a good position to quickly fix the mistake.