Credit Card Cancellation Tips You Need To Know

While lines of credit are a staple in American society, having too many credit cards can become an issue. The natural solution is to attempt to cancel a credit card. Closing a credit card can assist in controlling costs, reducing the chance of identity theft, and becoming financially responsible. For those hurting from financial debt, canceling a credit card can be the first step in stopping the bleeding to prevent overspending.

However, closing a credit card can have lasting effects on an individual. Read on to learn more about the impact canceling a credit card can have.

Factors to Consider Before Cancelling a Credit Card

Closing a credit card can provide benefits but also can have some downsides as well. While the process of canceling a card can be relatively simple, here are some factors to consider before making a rash decision:

  • Credit Score – Cancelling a credit card can potentially affect a consumer’s credit score. While canceling one card might not have a lasting effect, there still may be an immediate impact. Even a temporary effect could alter the ability to make financial purchases requiring a certain score.
  • Annual Fees and Rewards – Certain credit cards have an annual fee in exchange for certain rewards such as travel benefits, hotel stays, etc. Canceling a card before an annual fee comes up can save a consumer from paying a fee, but depending upon the timing, the consumer might lose the benefits of the card. Before canceling, a consumer might consider contacting the credit card company for possible alternatives. Some credit companies can offer a downgrade to a no-cost card within the same portfolio or even provide a credit to help cover the annual fee.
  • Recurring Payments – Consumers might use certain cards for recurring payments towards specific bills. Before canceling a card, a consumer should be sure the recurring payments will be covered by another method to avoid shutting of services.
  • Current Balance – Consumers should be aware that there are some credit card companies that do not allow the termination of a credit card account until the debt is paid off. Prior to terminating an account, a consumer can do some research or look at the terms and conditions to determine what rights the consumer is entitled to.

Reasons Why a Credit Card Might Be Closed

Credit card companies do not earn on unused credit cards. Companies might be incentivized to allow the canceling a card, depending on the reason why the card is canceled. Some reasons why a card might be canceled:

  • Discontinuation of the Card

Credit card companies assess their credit card portfolio on a regular basis to eliminate cards that might not be fit with their customer base. If this occurs, the credit card company is most likely to provide a notification prior to eliminating the card to inform consumers of alternatives, including moving the same account to a different type of card owned by the company.

  • Outstanding Payments

Credit is a financial instrument that allows consumers to make payments without cash on hand. However, credit card companies require minimum payments each month that the consumer must meet. Continued default on missed payments can lead to credit card providers referring an account to a collection agency.

Some credit card companies may eliminate privileges for consumers who are 60 or 90 days past due but may allow the consumer to resume after the account is brought current. However, after 180 days or six months of non-payment, some credit card companies terminate the account entirely.

  • Substantial Decrease in Credit Scores

Creditors cannot raise consumer’s interest rate due to late payments on other accounts (unless the accounts are with the same credit card issuer). However, continued missed payments can lead to an account being closed completely if the risk of default can be shown. As mentioned above, a credit card company can close an account and refer the account to collection agencies.

  • Notice of an Increased Interest or Annual Fee

Credit card issuers are required to provide 45 days before making a price adjustment to a credit card, such as hiking a fixed interest rate or annual fee. If a consumer elects to decline the change in terms and conditions, the credit card may be terminated.

Credit card issuers are required to provide 45 days before making a price adjustment to a credit card, such as hiking a fixed interest rate or annual fee. If a consumer elects to decline the change in terms and conditions, the credit card may be terminated.

How To Close A Credit Card

With all these factors to consider, canceling a credit card is a relatively simple process. While there may be financial debts that can create complexities, general principles still apply. Consumers who are facing complicated financial issues should be prepared to have discussions with the credit card company. Below are the following steps:

  • Pay down the outstanding credit card bill.
  • Redeem any pending cash back, bonus points, or rewards. Once the card is canceled, most benefits will be lost.
  • Cancel any recurring payments or planned transactions with the credit card. Transition recurring payments to an account that will manage those specific expenses.
  • Call the credit card provider to inform them of the desire to cancel the card. Request written confirmation from the issuer, such as an email or a postal letter, to confirm the cancellation of the card. Keep the document in a secure location.
  • Get a credit report 30 to 45 days after canceling the card to confirm the card is no longer listed. Expect to receive a report stating that the account was canceled by the cardholder and that the balance is zero. If not listed or no report is received, contact the credit bureaus to confirm that the card has been canceled.

Conduct Research to Determine if Closing a Credit Card Makes Sense for You

There is no right or wrong answer when it comes to closing a credit card with a balance. While keeping the account open can help an individual’s credit score, the yearly charge and the liability can prove to be too much for some individuals.

You Might Also Like: