How to Cancel Your Credit Cards

If you don’t have a need for a credit card, you may want to cancel it. However, canceling a credit card is not as simple as it sounds. You have to follow certain steps to protect your credit rating and score. Whatever your reason for getting rid of a credit card you'll want to make sure you do it thoroughly and that no harm is done to your credit report. Here are some of the important things to keep in mind when you get ready to cancel your credit card.

First, don't cancel a card while you still have balance on it. This outstanding balance just won’t go away with a cancel request. First pay off the balance and then wait couple of months to make sure you don’t have any outstanding finance charge showing up. For example, if you have $2,000 on your credit card and your monthly cycle starts on 1st of the month, paying off $2,000 on 15th will show that your outstanding balance is zero but finance charge on $2,000 from 1st thru 15th is not going to show up until next statement date(1st of next month). So if you cancel this card anytime between 16th and end of the month, you may think that outstanding balance was zero but that’s not the case and you might end up in collection due to a small amount.

Now let’s assume that you have a credit card with no balances for last couple of months and you want to cancel it. What is the best way to do it?

Before we talk about the best way to cancel it, let’s first talk about whether this card is the right card to cancel. For example, if you have three credit cards with no balances and credit limits of $1,000, $5,000, $10,000 which one should be the first candidate for cancellation?
Answer to this question is simple – you cancel the card with lowest credit limit. You do it because there is a financial term known as 'debt to credit ratio' that influences your credit score. To explain it, let’s go back to our example. For the sake of simplicity, let’s assume now you have  $4,000 balance on the card with $5,000 credit limit while other two cards have no balances.

If you have all three credit cards,  your debt to credit ratio = total debt/total credit available
So in this example, your debt to credit ratio = $4,000/$16,000 = 0.25 or 25%

If you cancel the card with $1,000 credit limit, your ratio = $4,000/$15,000 = 0.26 = 26%
If you cancel the card with $10,000 credit limt, your ratio = $4,000/$6,000 = 0.667 = 66.7%

As you can see, by canceling the card with higher limit, your debt to credit ratio jumped from a 25%(very good) to 67%(poor). This change can easily drop your credit score by as much as 20 to 30 points. Remember, lower the ratio, better it is.
That’s the reason you should pay close attention to your available credit before start canceling your cards.  However, If you're in credit trouble or if you had credit problems in the past and you know an open credit line is just going to temp you to spend - go ahead and close the account. Yes, it might ding your credit score a bit. But if it will keep you from acquiring more debt, it's best to do it. You can worry about building up your credit score after you're back on your feet financially.

Moving along, let's say you have paid off a card's balance and you know you want to cancel a certain credit card account.  Here are the important steps that you should take to cancel your account.

Your issuer's customer-service number will be printed on the back of the card, on the monthly statement, or both. Call that number, confirm that your balance is zero, and notify the customer-service representative that you're canceling the card. Ask them specifically to put  a comment  like “Closed at the customer request”. It is important because that’s what they will report to credit reporting agencies. Most of the time, they do it on their own but you want to make sure this text is added in case you’re talking to a rookie rep over the phone.

Some companies will allow you to cancel a card without even talking to a customer service representative. If that’s the case, follow up with another call to customer service to make sure account was closed. They might also try to convince you to not cancel your card with some offers so be prepared to say “No, thanks you” and move on. However, if you have another card that you’re paying higher interest rate, then listen closely to the customer service for any attractive offers. They might be willing to lower your interest rate, introductory balance transfer or upgrade your standard card to platinum. Carefully consider the ramifications of keeping the card open. If you are in the process of reducing the number of credit cards you carry, then cancel a different card. If no such offers are made, or appeal to you, then go ahead with the cancellation and do not allow the representative to convince you otherwise.

Remember credit card business is very competitive with new customer sign up rate below 1% per 1,000 offers. So credit card companies do everything in their power to keep an existing customer.

Write a short letter to the card issuer. If you can get a name so you can send it directly to someone, that is better. The letter should say that you're closing your account and that you want your credit record to reflect the fact that you requested that the account be closed. Provide your name, address and account number. If you were given any case reference number during your phone cancellation request, please include it on your letter. It will make it lot easier for them to find your cancellation request.
Send the letter by certified mail or return receipt requested. That way you can prove that the card issuer received your letter. You should allow as much as 30 days for the closing of your account. Then get a copy of your credit report and make sure it says 'closed at customer's request' and that (the account) actually has been taken off your credit report.

You may order your credit reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. The law allows you to order one free copy of your report from each of the nationwide consumer reporting companies every 12 months. When you get your credit report, check to see what is listed for the account you closed. If your report indicates that aAccount was “closed by creditor”, you want to correct that because it will impact your credit report negatively. If the card issuer mistakenly reported that the issuer, not you, closed the account, you'll have to return to the beginning. Call the customer-service department to report the mistake, follow up with a letter sent by certified mail (include a copy of the letter you wrote requesting that the account be closed), and check your credit report again.

To more effectively monitor your credit history, consider staggering your credit report order from the credit repositories over the course of a year. For example, in July request a report from Equifax, a report from TransUnion in November and a report from Experian in March. Keep in mind that credit repositories obtain information from different sources so they may not have all, or even the same, information. The most important thing, however, is to check the accuracy of the information they include. Order each report at www.annualcreditreport.com.

Believe it or not, it's not the credit bureau's responsibility to make sure that your credit report is correct. Credit bureaus report what creditors tell them. So if your credit report is inaccurate, don't ask the credit bureau to fix it. Ask the creditors to correct inaccuracies and update the credit bureaus.