Need closing a credit card account?

Posted on January 31, 2012 by Max

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Closing credit accounts may make sense if you struggle with spending discipline, but closing an account that supports your credit history and debt utilization ratio can have a negative impact on your credit score. Consider the pros and cons of closing the account relative to your own financial habits before closing an account.

If you decide to cancel a credit card account it is necessary to consider:

• Look at your total available credit. Add up how much available credit you have and how much credit you are using. Your goal should be to keep your credit utilization ratio below 30%. If you have few credit cards, or a high credit utilization ratio, keep the account open. If you have several credit card accounts with large credit lines and you pay them off each month, you should see a minimal effect from closing a credit card.
• If your credit score is excellent, losing a few points won’t be a big deal. If you are building or repairing your credit score, leave the account open.
• If you have a good credit score and no plans to apply for a loan, close the account. However, if you are going to buy a house or a car in the near future, keep your credit accounts open until you have been approved for the loan.
• Does unused credit tempt you to overspend? If these temptations have historically gotten in the way of sound financial judgment, it is better for you to close an account even if it does slightly lower your
  credit score. Running up needless debt is one of the worst financial mistakes you can make.

If you do choose to cancel your account, need:

• Pay off the total credit card balance;
• Call customer service to make sure the balance is zero, wait for the next bill;
• Call customer service and cancel the card;
• Send a written confirmation and keep a copy for your records;
• Check your credit report to make sure the account is closed;
• Go to www.annualcreditreport.com and check your report for free.