Wednesday, February 4, 2009

Credit Card Cancellation How-To

You are considering canceling a credit card. Perhaps you found a credit card you like better. Maybe you just have too much plastic in your wallet, or you no longer use that individual credit card. But cancelling a credit card the right way involves more than simply cutting it in two with a pair of scissors. Because it can be a confusing undertaking for many consumers, we will outline the important steps in the process.

Before we get to the steps involved, you should consider the possible effect cancelling a credit card may have on your credit score. Even closed credit card accounts can legitimately appear on your credit report for up to seven years after the date of last activity, as they become part of your credit history. Be aware that closing an account is not necessarily a good short-term strategy for boosting your credit score. One method creditors use to evaluate your ability to manage credit responsibly is by looking at how much credit you are using compared to the total amount of credit available to you. So it could look bad to owe the same amount to creditors while having fewer accounts open. Also, you should think twice about canceling your oldest credit card, as having longstanding accounts with good payment histories can help your credit score. If the credit card account has no negative items, there is probably no reason to close it. Also, avoid canceling a large number of credit cards all at once. Meanwhile, you should weigh your personal circumstances. Consumers seeking a loan for a car or home mortgage, for example, may want to wait until they get the loan before cancelling a credit card.

Provided you have considered these issues and have another credit card you can make charges on, you are ready to cancel your credit card. Closing an account the right way takes time, patience, and organization. But it’s important to be thorough in order to cancel your credit card correctly.

The first step is to pay down the balance in full on your credit card. For one thing, credit counselors note that there is no need to cancel an account until you are done with it. Separately, if you inform the card issuer that you are thinking about leaving, it could raise your interest rates to the highest allowable by law as a penalty for closing the account, if you do so with an outstanding balance.

Next, you will need to call the issuer, using the customer service number printed on the back of your card, on the monthly statement, or both. If you do not have that information handy, you can request the bank’s phone number from the toll-free information number: 800-555-1212.

Once you reach a bank customer service representative, you will want to confirm that your balance on the credit card is zero. Then inform them that you are cancelling the card. Be aware that some credit card companies will allow you to cancel without even speaking to a representative. However, others will transfer you to a special department for the sole purpose of trying to convince you not to cancel. After all, it costs the card issuer more to find new customers than to maintain existing ones. You may be offered incentives for keeping the card active, such as a lower interest rate. Even though these offers may sound appealing, consider the impact of keeping the credit card open. If you are convinced you want to cancel, remain firm if the representative tries to change your mind. Request a name and address you can write to with a notice of your cancellation.

Write a short letter to the card issuer, preferably directly to the name you may have been given, informing them of your decision to cancel your credit card and requesting written confirmation of the account’s closure. The letter should include your name, address, phone number, and account number. Also, state that you want your credit report to reflect that the account was “closed by request of the cardholder.” You may also want to include the check number (or a copy of the cancelled check or other payment verification) that you used to pay off your account balance, as well as the date the check cleared with your bank. Make a copy of this letter for your records. Additionally, you can place your destroyed credit card in the envelope with the letter. Send the letter via certified mail or return receipt requested so you can prove the company received your letter.

Then you wait a month, as it could take up to 30 days to close your account. After that time, get a copy of your credit report and make sure it indicates the account was “closed at customer’s request” (meaning you broke off the relationship with the bank, not the other way around) and that the account actually was taken off your credit report. Should the credit report show the account was “closed by creditor,” that reflects badly on you and therefore you will want to get this resolved. If that happens, repeat the process: call the customer service number to report the mistake, follow up with a letter by certified mail (including a copy of your original letter requesting that the account be closed), and check your credit report again. Be sure to keep at it. It is not the credit bureau’s responsibility to make sure your credit report is correct, so you need to check that what the creditors have told the credit bureau is accurate.

As you go through the process of canceling your credit card, you may want to keep thorough notes on who you spoke to, what they said, and when. That way, if anything goes wrong down the line, you will have all the facts recorded. When you get a return receipt from your certified mail, keep it with the log you are keeping and note the date the receipt comes in.

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