If you are going to cancel a credit card, do it wisely. Closing a credit card can impact your credit scores but it doesn’t have to.
The standard advice is to leave credit card accounts open. That being said, there are reasons you may want to close your cards. It is prudent to close joint credit card accounts during a separation or divorce. This protects you from liability for charges made by your former spouse. On joint accounts the lender will hold both parties responsible despite what a divorce decree might say.
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Annual account fees for a card you don’t use may warrant cancellation. If the card offers benefits you use in excess of the annual fee it may be worth keeping the account open. Request the card issuer to waive the annual fee before you cancel. They may waive it if they know you are considering closing your account.
Some people tend to spend more when they have more cards. They cancel cards to remove this temptation. A compromise that wouldn’t impact your credit score would be to limit your access to the cards by storing them in a secure place that is less accessible than your wallet.
You should try to pay all your credit card balances in full every month. This protects your credit score and saves you from paying interest. This is particularly true when closing an account. If all your credit cards have a $0 balance on your credit reports, closing a card will not hurt your credit score. Having a $0 balance on all your credit cards will prevent a card cancellation from affecting how much available credit you are using which in turn prevents an impact on your credit score.
Closing a credit card account does not remove it from your credit reports. It will continue to be factored into your credit score.
Only close a credit card account if you have a good reason to. If you do decide to close an account, there are several steps you should take to minimize any negative impact.
- Before canceling an account, use available rewards.
- Pay off all credit cards to as close to a $0 balance as possible before canceling any cards
- Call your credit card company to cancel and confirm that you have a $0 balance
- Send a certified letter to your credit card company to close the account. Ask for a confirmation in writing of your $0 balance and closed account status.
- Confirm that your three credit reports show the account was closed by cardholder and your balance is $0, 30 – 45 days after cancellation.
- If there is any incorrect information on your reports dispute discrepancies with the credit bureaus.
Before closing a credit card account consider the advantages and disadvantages for you. Once you do decide to cancel an account be sure to follow the recommended measures to minimize any impact on your credit score.