When used responsibly, a credit card can prove to be an incredible tool for someone who wants to make endless purchases, build and maintain a good credit score and earn rewards at the same time. However, sometimes closing your credit card can have a good outcome. It could be because you own too many credit cards and you don’t use them at all or you’re spending way too much.
But the question is – Can a closed credit card account impact your credit score? Well, that depends on your current financial condition, and like every other aspect of life, closing a credit card comes with its own set of good and bad. To make things easy for you, here in this article we have curated a list of reasons why you must cancel your credit card.
Reasons why you must consider cancelling your credit card
Cancelling a credit card may not be worth it, until you face any of the following circumstances.
Unnecessarily high annual fees
Is your card issuer charging you an unnecessarily high annual fee for an account you haven’t used for months? In that case, you must consider cancelling your credit card. But, if you receive several perks from the account that outweigh the annual fee, keeping the account open could be in your best interest.
A messed up relationship
Couples tend to have joint credit card accounts, which is much appreciated, until they end up separating. Why? If you are a joint card holder, you’ll be responsible for any past or future charges made on the account.
Bad spending habits
Some people are unable to resist their urge of spending too much on their credit card. While this might be a good reason to close a card for some, there are various other ways you can try out to control your overspending habits without impacting your credit score. For instance, whenever visiting malls, you can leave your credit card at home. This way you can resist your urge of buying more.
Now, if you have come across any of these situations and feel confident about your decision to cancel your credit card, read on to know how to cancel one.
- Close credit cards after paying off the remaining balance
Before anything else, make sure to clear the remaining balance on the card. Remember, you cannot raise a request to close the credit card, without paying off all your dues. One of the best ways to do this is: pay off the balance completely and call the bank to get further instructions.
However, if you can’t afford to pay the remaining dues entirely, you can simply transfer the balance to another credit card, preferably one with a lower interest rate.
- Ensure to cancel all auto-payments
Another thing you must do before you close your credit card is cancel your auto payments. All you have to do is, check-in to the bank’s website and cancel any automatic bill payments (utility bills) or transfers you have set up to go toward the credit card.
If you miss out doing so, the utility company will continue to try to charge your already closed credit card, which will obviously fail. And, as a result, you may miss out paying your utility bills on time. Ultimately, you will end up paying a fee for delayed payment.
- Do not hesitate to redeem your existing credit card rewards
Like already mentioned, credit cards can fetch you rewards on travel, shopping and much more. Any reward you may have earned while using your card, will automatically vanish as soon as you close your credit card. This explains why you must check your reward balance and get redeem it as a statement credit. After all, you have been consistent with your credit behavior and you deserve a reward for it.
- Always reach out to your bank to cancel your credit card
This one’s vital. Always reach out to your credit provider or rather the bank to inform them that you are willing to close your credit card account. You also need to confirm to the bank that your current balance is zero. They may try enticing you by offering new rewards or rates but you must stay strong and firmly hold on to your decisions. Also, to avoid any kind of miscommunication, double check with the bank.
- Send a letter of cancellation
While this isn’t necessary, you can still consider sending a letter of cancellation for extra protection. Whenever possible ask the customer service representative to share the best address details with you to send the letter. Further, ask the issuer to confirm that your account has been cleared off fully.
- Keep an eye on your credit report
Checking your credit report before closing your account is a must-do. If you come across mistakes such as payments being reported as late or payments being reported to the wrong account, you can simply go ahead and file a dispute. Within a time span of 30 days the credit bureau will review and respond to your dispute.
- Do not forget to dispose your credit card
Once you have successfully closed your account, it’s time to get rid of the plastic. You can shred your card in such a way so that no other person can recognize the numbers.
Is cancelling a credit card a bad idea?
To sum it up all, don’t close your credit card until and unless you have a solid reason to do so. If you own multiple cards, just learn how to manage them all efficiently and your credit score shall remain unaffected. However, if you need to cancel your credit card, do it in such a way that it minimizes the damage it can potentially cause to your credit history.