So, there’s a credit card with 50,000 bonus miles that fits in your wallet perfectly. It might sound amazing until the interest rate creeps in and the value of the card diminishes.
So, how do you cancel your credit card without affecting your credit score? It might not be as simple as snipping the card into two.
No one wants to make multiple calls to the bank to find out the cancellation process.
Although you may have an option to cancel the card online, it’s always best to speak to a representative. This article is everything you need to know about credit card cancellation.
Should You Really Cancel?
1. If you wish to cancel and close your credit card, the first step is to pay off the card balance in full.
The bank may give you an option to continue paying off the balance even after closure, it may affect your credit utilization ratio negatively.
Also, another example of the negative side effects here is that there might be a range of hidden factors like higher interest charges that you may not have considered.
2. Canceling or freezing the credit card-what works the best?
If you have had the credit card for a long time and it has played an imperative role in your credit score, it’s probably not the best idea to cancel the card now.
Instead, charge the card with a small purchase every year to keep it active or freeze it.
3. Annual fees
If you are canceling the card because of the annual fees, call your credit card issuer bank and check for alternatives.
Banks always provide their customers with counter offers before cancellation. If you get one, consider the benefits and stand your ground too.
For example, you could request that your bank eliminate the annual fees or you could ask for a product switch over.
If you think the interest rates are relatively higher than other banks, your bank may look at your request and put a counteroffer in order to retain your loyalty.
Remember, a longer positive history is always highly recommended for credit scores.
4. Credit utilization ratio
Credit utilization ratio and its impact on your credit score is an essential factor to consider. For instance, suppose you have a total credit of $20,000 available to you and your monthly expenditure is $4,000 that is 20% credit utilization ratio.
If you choose to cancel a card with a balance of $10,000, you are bringing your credit availability down and increasing your credit utilization ratio to over 40%.
It’s always best to keep your credit utilization below 30% for a good credit score.
Tip: Try not to close multiple accounts in one go as it may raise red flags to your creditors and will also affect your credit scores.
3 Things that Canceling Your Credit Card May Affect
1. Credit history: If you had a bad payment on your credit card, canceling your card will not make it go away. The information remains as a negative remark on your credit report for seven years.
2. Credit utilization ratio: This is also known as the balance-to-limit ratio.
As indicated earlier in the above pointers, credit bureaus closely monitor and take into account the total credit that is available to you.
Spend versus available account balance data is carefully recorded and this plays a
3. Age of your credit card: Closing a credit card that you have had for a long time now is not always a great idea.
It can negatively impact your credit score. Depending on your transaction and spending patterns, you may lose out on the positive payment history you have gathered over the years.
If your reason for cancellation is simply because you have too many credit cards that you have accumulated over a period of time, then it is crucial to think carefully before you consider which one to cancel.
Always compare the benefits to the cost of maintaining the card. Also, take a look at the age of the card too.
For example, if you have had a credit card since your college days and has suddenly become outweighed because of the benefits on the other card.
While these factors can negatively affect your credit score, there are some positives too. If you are trying to take control of your spending habits and keep a tab of the ever-accruing credit card debt, cancellation seems to be a good idea in the long run.
It is indeed the best possible way to escape having to pay high fees and prevent unnecessary spending too.
If you believe canceling your card is the best option for you, continue reading to find out how to do so with minimal consequences.
7 Steps to Cancel your Credit Card
Haphazardly canceling a credit card has consequences. Whether you are trying to control your impulsive spending or simply cancel a card that you haven’t used in a long time.
Always closely considered your credit card cancellation decision keeping in mind all the above factors. Closing and canceling credit card doesn’t always have to be a stressful and complicated task.
Follow these seven simple steps to process your credit card cancellation.
1. Get in touch with the customer service team or your relationship manager at the bank.
If you don’t have a dedicated relationship manager at the bank, reaching out to the right department through the call center is essential to get started with the cancellation process.
Always have your credit card and statement ready in front of you while calling the customer service team.
Get the name and contact details of the customer service representative that helps you so that you have it for future reference.
2. If applicable, be sure to redeem the miles or rewards that you may have accumulated over a period of time on your credit card.
In most cases, once the cancellation is processed you may not be able to redeem your hard-earned miles.
Redeem your favorite rewards and see if you can use them up for gift vouchers or travel tickets too.
For example, if you are entitled to cash credit, you can ask the customer service team to redeem it against any pending balance in the account.
Always check the website and redemption process prior to applying for cancellation.
3. Unless you pay off your balance on the credit card in full, you are not allowed to completely close a card.
There might be some alternatives like balance transfer or paying off later with a higher interest rate, so be sure to consider your options.
We strongly recommend you pay off the balance in full rather than opting for interest charges from accruing.
4. Confirm the balance is zero and let the customer service representative know about the cancellation.
While you may be given an option to cancel your card using the automated system without having a conversation with a representative, it is always best to opt for a ‘live’ interaction in such scenarios.
5. If you wish to take it a step further, for extra security and confirmation purposes, we recommend that you write an official letter with your signature indicating your interest in cancellation.
Indicate the conversation you’ve had with the representative, the date, your name, your address, phone number, and account number.
Also, indicate the check number used to pay off the card balance. Make copies of the letter for any future reference. Send it via certified mail to ensure the bank receives your request.
6. After the waiting period confirmed by your bank is over, pull a free copy of your credit report from a credit bureau like Equifax, Experian, or TransUnion. Verify if your account has been marked closed.
If not, repeat the process of contacting the bank. Include a copy of all the cancellation documents you had submitted and verify if the account has been closed.
If the report says the account isn’t canceled and shows as still active, file a dispute through the credit bureaus.
If everything else fails, file another dispute with the Consumer Financial Protection Bureau for resolution.
7. The last step is to discard the card itself. Dispose of the card in a manner that your information is unrecoverable by identity thieves.
Cutting your card into multiple pieces using scissors is the most advised of all the methods of card disposal. Slice each set of four numbers further, and be sure that the signature is cut through too.
If you have access to a shredder this is a great option for card disposal as well. In order to keep your identity safe from fraud, everything on your credit card must be destroyed and disposed of, including the magnetic stripe and RFID chip if applicable.
Well, there it is! If you are planning to invest in a new home or apply for an auto loan, you may want to wait until the application process is completed before canceling your card.
This is because cancellation may impact your credit score. We recommend you request for card cancellation after the application process for the mortgage is completed.
Perfect credit is a good goal to have, but what is even better is to get out of debt and seek financial stability.
Once you have completed all the above steps for credit card cancelation, be sure you have documented everything. Take notes of all your conversations, file the return receipt from the mail confirmation and make copies of your cancellation request too.
Consider the best course of action before making your decision. If you do choose to close the account and cancel the card, don’t forget to follow the above steps to simplify the process.
Share your credit card cancellation tips and stories in the comments section below.