Credit cards can be very helpful financial tools. They can help you buy the things that you want, get a loan and they can even give you rewards. But what do you do when it’s no longer of any use to you? If you’re thinking about closing your credit card, you also have to be aware of the consequences.
Closing your credit card is not as easy as many people think. If you’re not careful, you can end up hurting your credit score. And this is something that you definitely don’t want. Here’s some advice that might help you out.
1. Try to understand how closing your credit card affects your score
Your credit score is very important. Without it, you can’t get the credit cards that you want. A lot of things can affect your score in a negative way. Closing your credit card can be one of them. The reason for this is that you will be decreasing the total amount of credit you have available. As a result, your credit utilization ratio, which is about 30 percent of your credit score, also increases. If this ratio increases above 30 percent, you might see a hit to your score.
Another way closing your credit card can affect your score is by decreasing the total length of your credit history.
2. Don’t forget about your rewards
Some credit cards come with rewards and, if you cancel a card, you can lose them. Check your rewards balance and the redemption procedures. You may be able to transfer some rewards, such as accumulated miles. You worked hard for those rewards. It would be a shame to just lose them.
3. Pay your balance in full
Before closing your credit card, you must make sure that you balance is paid off in full. Otherwise, you won’t be able to cancel your card.
4. Talk directly to your bank’s customer service representative
There’s two ways this can help you. First, you can make sure that the balance on your credit is zero. It’s never good to assume things when it comes to credit card debt.
Once you’re certain that the balance is gone, you can cancel your card. A credit card company might fight you on this, as it’s in their best interest to keep your business, but closing an account is your right. So tell your representative to note that your account is being closed at your request and ask him for a name and an address where you can send a notice of cancellation.
5. Send the cancellation letter
This is for added insurance. Again, it’s never a good thing to assume anything when it comes to your finances. In your letter, you can ask for a written confirmation of your account’s closure.
6. Be patient and take notes
The hard part is done. Now you just have to wait for that confirmation. This may take a month or more. And, even if you get it, it’s a good idea to check credit report. Mistakes can happen any time.
The bottom line
If you have good credit, closing your credit card shouldn’t be a major concern. However, if you plan on getting a new loan or mortgage any time soon, you might want to hold on canceling that credit card until you passed this new hurdle.