If you are in debt, you may have already considered closing a credit card account. While this can help you save money on fees, it has one potential drawback-it can seriously damage your credit score. The good news is that there are ways on how you can avoid this.
Knowing how to cancel your credit cards the right way can put off the risk of lowering your rating. Here are the steps that you can follow to evade undesirable repercussions on your report:
Take note of your current credit score.
Before you do anything, make sure that you know what your credit score is. You can get a copy of your credit report from any of the three credit bureaus. Every consumer is entitled to get a version of their report once a year for free.
Know your credit utilization ratio.
This is one of the factors that affect your credit score. Also known as debt to credit ratio, this should not go over 30% so your score will not decrease. To compute your credit utilization ratio, add all your available credits. Then calculate all your balances. Divide your whole balance by the total credits to get the percentage. For instance, let us assume that you have available credits worth $3,000 and your total balance is $1,000. After computation, your credit utilization ratio will be 33%.
Pay off all your debts.
If you can't, you can simply pay off the credit card that you are trying to cancel. After repaying your debt, closing a credit card account will be much easier. Don't forget to confirm that your credit card has indeed zero balance by calling your issuer's customer service hotline.
Cancel your card.
Once your account's balance is zero, you can contact your creditor again to start closing the card. You may be thrown a few retention offers to entice you to withdraw the cancellation.
Follow up on your request.
Even though you have already spoken with a customer representative, you should follow up on your application to close your account. You can send out a request in writing stating the same thing. You may also want to obtain a written statement authorizing the termination of your account. It is good practice to keep a copy of the records you have acquired.
Check your credit report.
You may have to wait a few weeks before the activity will appear on your credit report. Make sure that everything is accurately documented including a zero balance on the closed account and that you have paid the card in full. Compare your credit score at the moment with your rating before you close the account. Hopefully, there is only a subtle change or none at all.
Knowing how to cancel your credit cards the right way can put off the risk of lowering your rating. Here are the steps that you can follow to evade undesirable repercussions on your report:
Take note of your current credit score.
Before you do anything, make sure that you know what your credit score is. You can get a copy of your credit report from any of the three credit bureaus. Every consumer is entitled to get a version of their report once a year for free.
Know your credit utilization ratio.
This is one of the factors that affect your credit score. Also known as debt to credit ratio, this should not go over 30% so your score will not decrease. To compute your credit utilization ratio, add all your available credits. Then calculate all your balances. Divide your whole balance by the total credits to get the percentage. For instance, let us assume that you have available credits worth $3,000 and your total balance is $1,000. After computation, your credit utilization ratio will be 33%.
Pay off all your debts.
If you can't, you can simply pay off the credit card that you are trying to cancel. After repaying your debt, closing a credit card account will be much easier. Don't forget to confirm that your credit card has indeed zero balance by calling your issuer's customer service hotline.
Cancel your card.
Once your account's balance is zero, you can contact your creditor again to start closing the card. You may be thrown a few retention offers to entice you to withdraw the cancellation.
Follow up on your request.
Even though you have already spoken with a customer representative, you should follow up on your application to close your account. You can send out a request in writing stating the same thing. You may also want to obtain a written statement authorizing the termination of your account. It is good practice to keep a copy of the records you have acquired.
Check your credit report.
You may have to wait a few weeks before the activity will appear on your credit report. Make sure that everything is accurately documented including a zero balance on the closed account and that you have paid the card in full. Compare your credit score at the moment with your rating before you close the account. Hopefully, there is only a subtle change or none at all.
Bring all other available lines of credit to zero if ever it is possible. This will ensure your credit utilization rate will not go up and negatively affect your score. Remember to call your credit card company to confirm that they show a zero balance on the account that you want to close.
ReplyDeleteRafael Conner