Canceling a credit card can seem like a straightforward and simple process, however, there are certain steps that you should consider to properly close a credit card account. Taking these measures can save you from any bigger trouble in the long run.
We are here to help you understand and give a thorough review of these steps. In this article, you’ll know why some people prefer to close their credit card accounts, and how to go about it properly to avoid an eventual decline in your credit score.
When Would You Cancel a Credit Card?
Before canceling your credit card, you should think about your choices. You should be aware that if you cancel a credit card, the penalties might have a long-term influence on your credit rating and report.
Canceling a credit card may appear to be an easy process in some situations. In some circumstances, though, you may need to end a connection with a credit card that you now know was too expensive and was adding to your financial issues. Credit card closure might have a negative influence on your credit scores and show on your credit reports. It should be mentioned, however, that canceling a credit card is not necessarily a bad idea. When you get a credit card, it is critical that you understand the terms of the agreement.
There are other reasons to cancel a credit card. It’s a smart idea to terminate a credit card account if you don’t use it, don’t want to pay an annual fee, want to transfer your loyalty from one airline or hotel to another, want to reduce the number of cards you have, or even because you’re just not finding it ideal to use a credit card anymore.
If your card does not have an annual fee, you do not really need to cancel it. If you are losing money by keeping the card open, contact the card issuer and request a credit card with no annual fee.
Reasons Why People Want To Close Their Credit Card
There are many reasons you might decide to close your credit card account. If you are starting to feel that you’re drowning in debt – mostly because of the annual fees piling up, closing your credit card is definitely something you have to consider.
Great Deal of Temptation
There is no doubt that some of us have a serious problem when it comes to spending money we don’t have. Sometimes, it is better to close an account than to entice ourselves with spending instead of closing it.
Consider the possibility of handling a spending problem another way before closing an account and potentially jeopardizing your credit score. For instance, you might leave your credit card at home if you know you will go shopping. A trusted person can also be asked to store the card for you so you can only use it for essential transactions.
Costly Annual Fees
Everybody dislikes the idea of paying high annual fees. However, there are times that an annual fee might be reasonable, especially if the benefits outweigh the cost; however, in most cases, an annual fee is normal even if the benefits are not used. Sometimes, it may be better to close the card than to keep it open.
If you believe you cannot afford the annual fee charged by your credit card provider, ask them to waive it for you. The late fee can also be waived if you are accidentally late during the workday and are rarely late in the future. It might be a valid reason to change your credit card issuer if they don’t bend on charging a substantial annual fee or to take your business to a place where there are no annual fees.
Fraudulent Card Usage
Fraudulent use of a credit card is one of the most common reasons for canceling the card. A credit card provider normally cancels your account upon receiving a report of a lost or stolen card, and sends you a new card as soon as possible. When you use your credit card in potentially fraudulent circumstances, however, this is not always the case.
Despite your best efforts, you may experience this problem if you cancel a subscription and it continues to charge your credit card. There is also the possibility of an issue emerging when you provide your credit card number to a company that is supposed to collect monthly payments from you, however, the company withdraws more funds than you authorized. It is in this situation that you may want to consider canceling your credit card account.
Divorce or Separation
As long as your credit card account continues to be open, you will be responsible for any charges incurred on that account.
It does not matter if your divorce order states that your ex-spouse is responsible for the bill, you will still be held accountable as long as the account is active and it is under your name. Hence, both account holders must make payments to the credit card company if they want the sum to be collected. It is in everyone’s best interest to close any joint account that you may have with your partner as soon as the process of separation.
Effects of Canceling Your Credit Card
Credit card cancellation may negatively affect your credit score, and many people would recommend avoiding it. Although you intend to terminate the credit card with no balance, you can still face this risk.
Credit Card Payment History
Your credit card payment history is highly significant and will not be wiped after your account is canceled. Late payments or other past issues are unlikely to be remedied. The account will also be canceled on your credit report. Once it is reflected on your credit report, you will not be able to get rid of it.
Combination of Credit
A person’s credit mix consists of several credit accounts such as credit cards, mortgages, and vehicle loans. If you close a credit card account, it may have a negative influence on your credit mix. The choice to close your credit card should be made with caution.
Before canceling a credit card, it is critical to know your balance. There is more to closing a credit card than just the amount owed. What matters is the entire amount of your debt.
Credit Rating and Credit Score
If you close the card, your credit score may suffer as a result. By analyzing your credit reports, you may calculate how much of your total available credit you are utilizing. The quantity of available credit that you use is directly related to your credit usage. Aiming for 30% is a solid starting point.
Brand New Credit
Closing an account too soon after it has been established is typically not a smart idea. An account canceled too quickly may signal a danger to lenders, resulting in a drop in your credit score and a lower possibility of obtaining a new loan. If you are young and do not have a long credit history, you are at a disadvantage.
Duration of Credit History
Keep any older credit card accounts active for as long as feasible. You may improve your credit score by keeping an open account for a longer length of time. However, the option of canceling an account is always available, especially if the conditions are no longer favorable to the parties and you cannot afford the costs. However, if you haggle with the credit card issuer to keep your account, they may be prepared to offer you a better deal. You may keep the same account history if you switch from a card with an annual fee to one with no annual charge.
Steps on How to Properly Close Your Credit Card
Now that you understand the consequences of credit card cancellation and are still willing to proceed, here are the measures you must take to guarantee that the closure of your account is secure, safe, and correct.
- Ensure that any outstanding credit card balances are paid off.
Before deleting your credit card, pay off all of your outstanding debts. Even while some issuers enable you to terminate your account while paying off an outstanding debt, we highly advise you to complete the whole sum. Because of this strategy, you will avoid forgetting any money or incurring charges.
- You should cancel recurring payments.
If you have regular payments set up on your invoices, please change your payment information after you have decided to end your account. If you do not cancel your account’s regular payments, they will continue to be charged to your account until you do.
- Make sure all rewards have been redeemed.
If you cancel a rewards credit card before claiming your benefits, you will not be able to reclaim any unused cash back, point, or mile incentives. To prevent losing your rewards, it is best to redeem or transfer them before canceling your account.
- Go to the credit card company’s website.
If you do not want to contact customer care, you can cancel online. Some credit card providers may be able to help you with this.
- Get in touch with your credit card company.
You should be able to find the customer service phone number on the back of your card. You must notify the firm that you intend to cancel your credit card. Any information that must be given to you as quickly as feasible is far better delivered to you directly by the company.
- Write a letter.
To confirm your cancellation, send an email or write a letter to the credit card company. If there was an error and your card is still active, you may be able to record the date you requested the cancellation.
- Review your credit report.
Check your credit reports to ensure that your credit card has been canceled. Checking your credit record after a credit card cancellation is done merely to ensure that your credit card has been canceled.
- Ensure that the actual card is destroyed.
Some may believe that this should be the first move, especially if the cause for your credit card cancellation is excessive spending. However, you should be sure to follow the prior procedures first. Only when all of the previous stages have been completed can you go to this step. It is a simple but crucial step in ensuring that the card is not used by anybody else.
Regardless of why a person would keep their credit cards active, such as for points or incentives, maintaining a good credit card record is critical to your financial health. However, when the expenses outweigh the advantages of credit cards, it makes little sense to pay a charge for them. When you cancel a credit card, you should consider how it may influence your credit score and credit status.