Closing a credit card can help improve your credit score by freeing up your available credit or getting out of a high interest rate agreement. Keep these tips in mind when closing a credit to make sure you get through the process without additional charges or other surprises. (Follow these steps if you've been ripped off or spot an error on your bill. Refer to How To Dispute A Credit Card Charge.)
IN PICTURES: 6 Major Credit Card Mistakes
1. Clear the Balance
If you are carrying a balance on a credit card, you can't close the card without first clearing the balance. You can do this the old-fashioned way, which is the best way: pay off the balance. If you can't afford to pay the card off, you can transfer the balance to another credit card, preferably one with a lower interest rate.
Be aware that balance transfers will cost you a fee, which is usually a percentage (1% and 5% are common) of the total amount transferred.
2. Read the Fine Print
Check your card holder's agreement for closing procedures and possible penalties before you make the call. If you've opened the card recently, you may find that there is a charge for early closure.
3. Collect Outstanding Rewards
Generally, any rewards (such as points or airline miles) still technically belong to you even after you close the credit card. But the wise person will collect before closure. If you're not up to a certain amount of points or dollars earned to collect your reward, decide if it's worth it or not to hang on to the card until you reach that amount. If the reward is only worth $50, but you'll be shelling out $100 a month in extra interest, cut your losses, pay off the card and close it.
4. Cancel Automatic Payments
Before you cancel your account, log onto your bank's website and cancel any automatic bill payments or transfers you have set up to go toward the credit card. If you don't do this, you'll have payments go through on a $0 balance; which might actually result in additional fees or time-consuming paper work. (Avoid these pitfalls to keep your credit score healthy and your debt under control. To learn more, read 6 Major Credit Card Mistakes.)
5. Change Bill Payments
Look over the last statement from your card before canceling. Do you have any recurring bills or charges set up with this card? Before you cancel, go change those methods of payments so you won't have last-minute charges appearing when you thought you'd cleared the balance, and also so you won't find yourself with interrupted services or non-payment fees because your credit card (now closed) didn't work anymore.
6. Call, Cancel and Get an Effective Date
Look on your credit card statement for the customer service number to call. In many cases, there will be a separate number to call for closures or issues with your card. Be prepared for a conversation with an employee who has been trained to try to talk you out of closing your credit card. Just answer any offers or questions with your bottom line: "No, thanks, I want to close the card." Ask for the date when the closure will be effective, and clarify if there are any outstanding finance charges that will come through before the closure date. Don't assume that closure is effective immediately. If there will be finance charges, ask if you can go ahead and pay them over the phone. You can also send a letter requesting closure and save yourself some time on the phone.
7. Get Confirmation in Writing
When you call to cancel your card, request that the credit card company send you a confirmation letter with the request for closure and the effective date of closure on it. Be sure to keep this letter for your records. If you have a credit report done (which is a good idea to do annually) and notice that this credit card still shows up, you'll have your proof, in writing, that you did indeed close the account and the credit card company did not follow through.
IN PICTURES: 5 Keys To Unlocking A Better Credit Score
The Bottom Line
It's a good idea to get a credit report several weeks after you've closed a credit card, and especially if you've closed more than one, just to be sure that everything has gone through as it should have. The sooner you check up on this, the easier it will be to deal with anything that might come up. Remember that open credit cards affect your credit score, even if you don't carry a balance on them, so get rid of that deadweight while you start the new year. (Find out the consequences before deciding to end your credit agreement. See Should You Close Your Credit Card?)
For the latest financial news, check out Water Cooler Finance: Conflicting Job Reports And A Facebook IPO.
Credit & LoansDiscover how the Walmart MoneyCard and the Walmart credit card have different benefits that may influence your decision on which one to choose.
SavingsLearn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
Credit & LoansIt'll cost you more, but borrowing is definitely doable. Here's how to proceed.
Credit & LoansHoliday expenses can drown you in debt. Find out how to avoid this festive spending hangover.
Credit & LoansHandled correctly – and very carefully – a promotional credit card balance transfer offer can save you money. Here are some of the best deals around now.
InvestingHere are the best tips for raising your credit score quickly.
Credit & LoansIf you want to remove your name from someone else’s loan, there are four key ways to do it.
Credit & LoansWhen you pay less than the minimum monthly payment on your credit cards, you become delinquent.
Credit & LoansYour credit score can change if you aren't careful. From missing payments to carrying high balances, there are many ways to torpedo your credit score.
Credit & LoansYour credit report is one of the most important factors in determining your ability to get loans and new credit and has a major influence on your rates.
Apple Pay is a mobile payment system created by Apple to reducing the number of times shoppers and buyers have to pay for ... Read Full Answer >>
Consumers can use their Walmart credit cards to shop at Sam's Club. However, they cannot use their Walmart credit cards when ... Read Full Answer >>
Walmart offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. How to Close Your Walmart Credit ... Read Full Answer >>
The Walmart credit card does not charge annual fees to its cardholders. It does, however, have other fees associated with ... Read Full Answer >>
NetSpend prepaid MasterCard and Visa cards are popular prepaid debit cards requiring no minimum balance and no credit check. ... Read Full Answer >>
The Best Buy credit card can only be used in Best Buy stores and when making purchases online through the Best Buy website. ... Read Full Answer >>