In the United States today, there are approximately 425 million credit card accounts. The average U.S. consumer has two credit card accounts, and some consumers have as many as five cards. That is a lot of credit for one person to have, especially as many of us do a poor job of managing our pieces of plastic. There is a reason why credit card debt totals $750 billion.
As you comb through your finances and take a detailed look at your card statements, you may be wondering if now would be a good time to close at least one card account.
Let's face it: most of us do not need more than two credit cards. By having additional pieces of plastic in your hands or wallets, you get tempted by the coquettish nature of credit. With another Visa, MasterCard or American Express in your grasp, you can get trapped into the vicious cycle of debt, a place that no one wants to be, particularly when interest rates start to go up.
Credit can maintain a Faustian nature. Without any fiscal discipline, self-control or willpower, these cards in your possession can force you to sacrifice the future for the present. Credit can offer the illusion of prosperity, and it can certainly devastate your personal finances.
If you are now convinced that having multiple credit cards is a bad idea then the next step is to actually close down a credit card account, which is not as difficult as it may seem. Millions of people do it every day all over the world because they want to avoid overspending, they want to refrain from facing excessive interest charges or they're not interested in paying an annual fee.
How to Cancel a Credit Card
Here is the proper procedure of shutting down an account:
Pay Off Your Balance First
The very first thing that you must do is pay off your balance. You can't cancel a credit card or shut down an account without eliminating the balance first. Whether it's $10 or $500, you have to pay back the funds that you have borrowed, including any interest that may have accrued.
Cancel Automatic Charges to Your Card
After paying off your balance, you must also cancel any automatic charges made to your credit card. By failing to do so, you can hurt your credit score because of missed payments or you can pay unnecessary interest charges if the transaction goes through and is approved.
Therefore, you must take a look at who is automatically deducting from your credit card and immediately change the way they receive money from your bank account.
Know Who You're Contacting
Now that you have paid off your balance, the next step is to contact the card issuer. Once you reach a customer service representative or a credit card agent, you should immediately write down their name and number for further documentation of your overall case.
If something does go wrong then you have their name and number to refer to down the line.
Redeem Any of the Available Rewards
Do you have a credit card with points or rewards? If so, you must redeem them right away. You don't want those rewards or points to go to waste. Therefore, as you're speaking with the representative, you need to request to cash in your credit card rewards, which can perhaps be used to pay off your remaining balance.
Send a Letter or an Email
As soon as you end the phone call, you need to compose a letter or an email to confirm that you have shut down your credit card account. Remember, the more documentation and records you have, the less likely you will experience a headache in the future. If you're charged interest next month or the month after that then you can refer to the email and the agent you spoke with.
Hold Firm & Sit Tight
Lastly, and this is perhaps the most important step of the process, you need to hold firm and sit tight. The entire ordeal can be a hassle, you may receive pushback from the customer service agent and you may be told by management that it is unwise to get rid of your credit card.
With that being said, you need to hold your ground and stick with your plan. It is your right to cancel any account that you wish if the balance is paid off. Even if they're attempting to persuade you to stay on with all sorts of offers and rewards, if you want to ultimately end an account then you must not be dissuaded whatsoever.
Cut up the Card
Once you are certain that the account is closed, you should immediately cut up the card.
Soft Close vs. Hard Close – What's the Difference?
And this is why some people do not even bother ending their credit card accounts...
During the process, there are two ways to eliminate a credit card from your arsenal of cards: a soft close and a hard close. You may now be wondering just what exactly the difference is.
- Hard Close: this is when your credit card account is shut down without any new charges. You must request this to your card issuer otherwise you may have other charges.
- Soft Close: this is when your credit card account permits new charges, even when you have asked to have your account closed. You can become open to fraud or merchants will proceed with constant billing for their services.
Indeed, some creditors may refrain from performing a hard close until a specific amount of time has gone by. If your creditor is one of those companies with this policy then you have to ask how long exactly you have to wait. Once you are told then you have to request a letter that confirms your account has been hard closed. This way, you can avoid any unnecessary difficulties a couple months after.
In the event that a credit card charge arises then there are several things that you can do. Here are several tips that you can take advantage of:
- Pay your bill immediately because interest will accrue then you will have more trouble.
- Document the transaction and ensure you have the information on hand.
- Contact the credit card issuer and explain to them that you have cancelled your account.
- Be sure to contact the merchant and note that you have gotten rid of your card.
- Always remain calm as you speak to a customer service representative.
Let's be honest: mistakes happen so even if you have been careful with the process of ending an account, errors can still occur.
Will Closing the Account Affect Your Credit Score?
Many consumers wonder if shutting down a credit card account can actually harm your overall credit score and apply a blemish to your record. It isn't as black and white as all of that.
Within one month upon closing your credit card account, your decision will be reported to any of the credit reporting agencies: TransUnion, Experian, Equifax or some other organization. It is likely that this move will stay on your credit history for as long as 10 years. Even without any negative marks placed against you, the note will stay there for many years.
When it comes to the credit score, getting rid of your card could negatively impact your FICO score. This is generally used by lenders because the FICO consists of a wide variety of factors to determine scores.
Here are five of the factors determining your FICO score:
- Payment history
- Amounts owed
- Length of credit history
- New Credit
- Types of credit used
Of this list, the two main categories used to conclude what your FICO score is after you shut down your credit card account will be the amounts owed and the length of your credit history.
Today, we have more credit cards than ever before. Reports suggest that our borrowing habits are similar to that prior to the global economic collapse. In other words, we're spending like drunken sailors, and we're using our credit cards to achieve instant gratification and incur a lot of debt.
It is true that many consumers, especially younger shoppers, can't practice self-restraint. This is why everyone, including those fiscally prudent individuals, should definitely limit themselves to just one or two credit cards. Otherwise, if you have a handful of cards then you can place your personal finances in jeopardy and harm your financial future.
Although your financial institution or credit card issuer will say there are not too many reasons to close an account, there are actually numerous compelling arguments and reasons to shut down a credit card. Everything from a paucity of fiscal restraint to exorbitant interest rates, consumers definitely have their own reasons for wanting to get rid of a Visa or a Capital One account.
You just have to select which one you want to eliminate from your wallet: the one that is costing you too much money or the one that you're using too much of. Just remember to do it one at a time.
Dispute Credit Card Charge Letter
A letter used to dispute a credit card charge that appeared on a billing statement.