How to Cancel a Credit Card

Credit cards can cause big temptations for many consumers. Knowing that you have credit available to spend could lead to unnecessary and expensive purchases that you may not be able to pay for at the end of the month.

Having extra credit cards in your wallet can also lead to fraud. If you have several credit cards in your wallet, one can easily go missing unnoticed. In the meantime, a thief could be charging up thousands of dollars worth of debt. The longer it goes undetected and unreported, the large the headache you’ll have once the fraud is caught.

Between the temptation of overspending and the risk of fraud, it’s understandable that many consumers are interested in closing unused credit cards. But before you cut up your cards, you may want to consider your choices and learn the appropriate way to close the account.

Determining whether to close your card

Before you close your account, it’s best to do some research. Take the time to pull your credit report so see if the credit card in question is the oldest account on your report. According to Fair Isaac, the maker of the FICO score, the length of your credit history accounts for 15% of your credit score. This means that if you close the oldest account being reported to the credit bureaus, your credit score will automatically decrease.

Closing a card can also cause a jump in your debt-to-limit ratio, which could cause a temporary decrease in your credit score. For example, if you have three open credit cards each with a $3,000 limit (making a total limit of $9,000), and have a balance of $2,400 spread between two of the cards, you currently have a utilization ratio of 27%. If you close the card with no balance, your available credit will decrease to $6,000 and your ratio will jump to 40%.

Once you pay off or lower your balance, your ratio will get below the 30% threshold that is recommended. However, if you plan to apply for an auto loan, mortgage or other type of credit before you pay off that balance, you may want to consider waiting to close the credit card.

Don’t just cut up your card

Once you have decided to close a credit card, you will want to make sure you actually close the account. Simply cutting up your card will open you to the risk of identity theft and the possibility of fees. The theft and fees can go unnoticed for months, especially if you move and the credit card company does not have your new address. In many instances, this debt will go unknown until the consumer applies for credit and is denied due to unpaid accounts.

Here are the appropriate steps to take to ensure your credit card is fully closed:

1. Contact the appropriate department – You will want to gather the phone number and mailing address from your monthly statement or the credit card issuer’s website.

2. Pay your balance – Prior to closing the card, you will need to pay the balance and any fees; make sure your payment goes through before initiating the closure of your account.

3. Call the company – Once you have paid your balance in full, call the credit card’s customer service department. Confirm that there is no balance and inform the representative that you would like to cancel your card. Be prepared for a sales pitch, as the representative is likely to have goals in regards to encouraging customers to keep their accounts.

   During the phone call, confirm the address where you can send an official letter requesting the closure of the card. You will want to also ask for the representative’s name and employee numbers for your records.

4. Write an official letter – Once you have completed the phone call, you will want to also mail a written letter to the credit card company. This will ensure that the account is appropriate closed. In the letter, include your name, address, phone number and account number. You will also want to request written confirmation of account closure.

5. Pull your credit report – You may need to wait for up to a month to receive written confirmation from your credit card company. Once you receive confirmation, you will want to also check your credit report. Your credit report should note the account is closed at consumer’s request. If the account is marked as opened or closed at creditor’s request, you will want to contact the credit card company and complete a dispute through the credit bureau to get the information corrected on your credit report.

Follow @CreditDonkey or write to Meghan Clark at meghan@creditdonkey.com

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