A lower interest rate comes your way or a special deal entices you to accept a new credit card offer. Should you cancel your old credit card account(s)? If so, how do you ensure that your credit score isn’t negatively affected?
Old Accounts – Points to Consider
Closing Inactive Accounts is Smart: Any credit card that you don’t plan to use again is like an open window to identity theft. These are the cards that end up in a drawer and are forgotten about. “Out of sight–out of mind” can make you vulnerable to unauthorized activity. Consider closing your unused cards.
Check Out Your Credit Report: Your credit report can help you decide which credit cards to close. Look for negative signs associated with your accounts – late payments and high interest rates are several reasons to consider. Even cards carrying a balance can be closed, if necessary. Keep in mind, new charges will not be authorized while you pay down the balance.
Maintain a Manageable Number of Accounts: Closing too many credit card accounts can be viewed negatively by the credit bureaus. You need to maintain enough open accounts so that your debt-to-credit ratio is below 50% – or in other words, never spend more than 1/2 of your available credit. For example, if you have $10,000 of credit available and have charged $7,500, you’ve used 75% of your available credit. As odd as it sounds, your credit score will improve if you open another account to bring the ratio back to 50% or less.
Keep Aging Accounts Open: Long-standing accounts that you have responsibly managed in the past carry a great deal of positive weight in determining your credit score. It’s in your best interest to maintain these accounts and to use them occasionally to maintain an active status.
Cancel in Moderation: A red flag is raised when you cancel several credit card accounts at one time. Credit agencies will be leery of these actions because they may reflect a change in your financial status, i.e.: employment termination, layoff, etc. If you see a need to eliminate several accounts, close them over time – spacing them out to avoid a negative impact to your credit score.
How to Close a Credit Card Account
- Although it’s not necessary to pay off the balance on a credit card before you cancel, it may be a wise thing to do. A cancelled account with a balance may be a red flag on your credit report.
- Look for the customer service number on the back of your credit card or on your monthly statement and speak with a representative. Confirm that you have a zero balance and request cancellation.
For confirmation of your cancellation, send your request via certified mail. The address can be found on your monthly statement. The letter should include your name, address, phone number, account number and state that you want your credit report to reflect that the account was ‘closed by request of the cardholder’. The postal service insures that the request is delivered and you will receive a letter of confirmation in 10-15 days.
- After you have called or mailed your letter, wait 60 days for the adjustment to appear on your credit report. Verify that the account is marked ‘closed by request of cardholder’. If the account reflects ‘closed by creditor’, immediately contact a representative to report the mistake and send another certified letter requesting the correction. Accounts that indicate ‘closed by creditor’ can be interpreted as a negative by creditors. It is your responsibility to make sure your credit report is accurate.
- Keep records and notes of your cancellations along with vital contact information, dates, copies of certified letters and receipts.
- Destroy your canceled credit cards by cutting through the account number, the magnetic strip and the signature line.
- Remember that your canceled credit cards will remain on your credit report for 7 years. When you review it each year, look for unauthorized activity even in the areas that show canceled accounts.
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