The credit card industry is constantly coming up with new and innovative credit card products that can help your business save money, offset travel costs, and provide other incentives. Make no mistake – aggressive credit card marketing and attractive promotions make signing up for new cards very tempting. If you look in your wallet or purse and realize that you have a few too many credit cards, now’s the time to clear some out. But what’s the best way to cancel a credit card?
Let’s start with the easy questions: Are you holding on to credit cards that have annual fees? Maybe even more than one of these? Do you know what the fees are, and if they’re worthwhile? Do you know what rewards you get (if any) from each card? Do you know which one has the lowest interest rates n case you’re late on a payment? To best determine which credit cards to cancel and which to keep, start by understanding the pros and cons of each card, so that you’ll make a decision that’s best for your company. There’s more to canceling a credit card than destroying the card; you’ll need to close out the account properly, so that the card won’t continue to impact your credit score. Follow this guideline to learn the right way to cancel your credit card.
The first thing you want to do is make certain the cards you want to close haven’t had any negative marks against it. Missing a payment isn’t the end of the world but it will remain on your credit report for a while. Seven years to be exact. Unfortunately, it will stay on your credit report even if you cancel the card. Get in touch with a service representative from the credit card company and see what you can do to reduce or remove any items on your report that may have a negative effect on your credit score.
There’s another side effect to canceling a credit card. It reduces the total amount of credit you have on your credit report. While this should be considered positive overall, it means the balance between what you spend and your entire credit limit will be altered. This could actually have a negative impact on your credit report.
As an example, let’s say you have three cards with $9000 total credit, and you have a balance on your cards of $3000. That’s a 1:3 ratio, which is okay. After canceling a card, you’ve still spent $3000, but now you have a total limit of only $6000. That’s a 1:2 ratio, which is much higher, and may make you seem like a riskier borrower.
Credit card rewards are great incentives that credit card companies provide to get you to use their card. What many people don’t realize is that once you cancel your card, any rewards you may have acquired will disappear along with the account. Be sure to call your credit card company first and redeem any rewards you may have earned before you close the account. If you can’t redeem any rewards, ask the customer service representative if there’s any way you can apply the reward you currently have as a credit on your statement. If your credit card company is reasonable, you should be able to get the cash value of your unredeemed reward to help pay down your outstanding balance. It doesn’t hurt to ask.
Credit card companies won’t let you close your credit card account if you have a balance remaining. You can use a different credit card to pay off the balance of the card you want to cancel. Try to use a card that has a lower interest rate than the card you’re canceling, especially if you are paying down a large balance. You can spread your remaining balance over more than one card if one card doesn’t have enough of a credit limit on it.
Once you have received all your rewards and have confirmed that your card no longer has a balance on it, it’s time to make the call to cancel the card. Be prepared for the customer service representative to offer you additional rewards and incentives to continue using the card. Keep your goal in mind: consolidating your cards, your debt, and getting financially organized. At the same time, be smart: if they can give you enough of an incentive to keep the card, it might be worth it to keep the card and cancel another. Remember, this is their business, and they want to keep you as a customer. Just make sure you get confirmation of everything they promise you, and that you actually get what you’ve been promised. Pro tip: hold out for more than a toaster.
If ,after listening to the credit card company’s counter-offer, you have still decided to cancel the card, be sure to ask for an address where you can send a letter requesting that the account be canceled. It may seem antiquated by today’s standards, but it’s still the best way to ensure that they have received your request to cancel your card. Send them a registered letter with all of your contact information and a request saying clearly that the account was closed at your request. Don’t forget to ask for a formal letter in return acknowledging that the card has in fact been canceled. It will serve as an important piece of information in the unfortunate event that there is a mishap with your credit report.
Check your credit report in a month to confirm that the credit card was in fact canceled.
When you cancel a credit card, it’s a good idea to be super-organized. Buy a folder you can keep all your information in, including credit card statements, a copy of your letter requesting cancellation, and notes from every phone call you make during the process. Make sure to take the names and, if possible, employee ID numbers of every person you speak to during the process of closing your credit card account, just in case there’s a problem and you have to figure out where or with whom it happened. Canceling a credit card can be a tedious task, but when done properly it can save you headaches and money in the long run.