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.)
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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.
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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?)
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