Canceling a Credit Card Without Hurting your Credit Score

Consumers may want to think twice before they cancel a credit card. Taking a pair of scissors to that piece of plastic may seem like a quick way to dispose of a card, but this will be doing more harm than good. Properly canceling a card involves many steps and if you don’t do them it will damage your credit score.

Borrowers may want to get rid of a credit card for a number of reasons: They have paid off the balance, they are trying to eliminate excess spending or interest rates have reached extreme levels. These are practical reasons why someone should get rid of a credit card, but it is important to remember there are logical ways to go about the process. Going through the proper steps to cancel a card can help prevent your credit score from taking a dip and help you avoid headaches.

Is canceling a card right for you?

Before you decide to close a credit card account, you should think about the ramifications of this action. Many lenders will look at the amount of credit you have on accounts in order to determine whether you are credit-worthy. If you end up closing an account, especially one with a high limit, your credit score could take a hit, thus hurting your chances of getting a loan in the future. Experts say that it is smart to close an account when your balance is at zero. No only will this step make the process easier but it will not hurt your score.

Another thing to consider is how long a certain card has been open. A credit score is determined by a few factors and one of those is the length of time an account has been open. Close a card if you have had a good track record and it has been open for a while. If you’re a younger cardholder with very little activity on your account, closing an account may not be a good idea. Credit takes time to build and shutting down an account at an early stage will hurt your overall state. After you have decided that closing a credit card makes sense for you, there are a number of cautious steps to take. Simply destroying a card will not wipe any debt off of your account, so following these steps can help you properly close a card without affecting the state of your credit score.

Pay off the balance

Canceling a credit card is a long process and one of those steps involves paying down a balance in full. There are two ways you can go about this process: Completely pay off your balance or find a balance transfer card with better conditions. A creditor will not let you completely close an account until the balance is completely paid off. If you need assistance paying off the card quicker, ask the issuer if the card can be frozen until the balance is paid off. This will help prevent any interest or additional charges from going on your account.

Alert your credit provider

Once you have gotten a hold of a proper representative for your credit provider, ask them if your account has been fully paid. You do not want to come all this way and then learn that there are still some interest charges or other fees that still have to be paid off.

During this step a representative may try to talk you out of canceling this card. CreditCards.com said many lenders will try this sales tactic because it will cost them more to find a new customer than to hold on to old ones. Stay steadfast in your approach and tell them you wish for the account to be closed at this time.

Double check

Even though you have talked with a lender representative on the phone, it doesn’t hurt to write a quick cancelation letter to the issuer and ask for confirmation that the account has been closed. This short letter should include your name, phone number, address, account number, payoff verification of the account and any details from the phone call you had with the representative. An important part to include in the letter is that the card was “closed at the consumer’s request.” This will show future lenders that you closed the account through the proper steps, and this extra step will protect your credit score.

Wait time

Once you have completed all these necessary steps it is time to play the waiting game. The entire process should take around a month, so there is no need to call asking if the account has been closed. Once you have waited the allotted time, take a look at your credit report to make sure that the account has been closed. If you see that the account is still open, simply repeat the process of calling the issuer and writing a letter for confirmation. If you still see that this account is open, you can file a dispute with one of the major credit bureaus – Equifax, Experian or TransUnion.