Make sure you close your credit card correctly
Many Americans carry multiple credit cards in their wallets, and some may owe a balance on each account. While various credit lines can ensure that individuals always have funding on hand, it can also lead to a cycle of debt that is difficult to escape. To avoid the temptation of racking up large balances, some people choose to close a few of their accounts and simply rely on one or two instead. While this action is effective in limiting the amount of credit to which they have access, there are several considerations that should be weighed before doing so.
First, consumers should be aware that closing a credit account may have an adverse impact on their credit scores. A percentage of their rating is based on the average length of their credit history, so closing old accounts may shorten it.
If individuals determine that closing old accounts is still in their best interest, it’s important that they pay off their balance in full before doing so. It’s financially beneficial to start with the card that carries the highest interest rate, as it imposes the largest monthly charges. High-interest credit card debt can be difficult to eliminate quickly if consumers only pay the minimum balance, so borrowers should reorganize their budgets in a way that enables them to put more toward this particular card. If the account is a rewards card, consumers may also have the option of using some of their accrued benefits to put toward their balance.
After borrowers have paid off the amount in full, they should contact their issuer to cancel the account. This part can be difficult because lenders may try to encourage consumers to leave the account open or apply for a card with a more affordable rate. Customers should keep in mind the reason they are canceling the product to avoid getting roped into another product.
Following up after cancellation
Once a lender confirms cancellation of the card, it can be helpful for consumers to send written confirmation to the issuer that the card is no longer in use, and retain a copy for their records. In addition, individuals should dispose of the card properly by cutting it up. Finally, consumers should also check their credit report to ensure that the account is listed as closed and paid in full. Roughly 80 percent of credit reports contain some type of error, so it’s important that customers ensure their account closure was listed accurately to avoid credit issues in the future.