What You Need To Know Before You Cancel A Credit Card
Account
Most folks in the states have more than one
credit card. Some folks have more than they should really
have. The reason it’s so easy to get a credit card is that
people can send out application after application after getting
“pre-qualified” ones in the mail. And, having too many credit cards can
lead to excessive debt for some folks because they make poor financial
decisions.
The way people deal with their high credit
card debt is to cancel their credit card accounts. Before you decide to
terminate your card accounts, there are some things you need to
consider.
1 – You shouldn’t terminate a credit card you still have a balance on.
The reason is that credit card companies have some type of cancellation
penalty such as the interest rate increasing to its maximum level if
it’s cancelled while carrying a balance. Make sure you pay
the credit card off before you cancel the account.
2 – If you cancel a credit card, it will negatively impact your credit
score. It would seem illogical that this happens. However, it can
happen. Your credit score is based on total available credit and your
outstanding balance. If you choose to cancel a card that’s got a zero
balance, you actually hurt your score.
For instance, you have four credit cards that have a total of $8,000
available credit with an outstanding balance of $2,000. Assume that
each credit limit is $2,000. The ratio is presently .25 or ($2,000
divided by $8,000). Cancel one of those cards that have a zero balance
and this radio increases to .33 or ($2,000 divided by $6,000).
Since the ratio is higher, it can negatively impact your credit rating.
If you’re trying to get a mortgage or car loan, you would be better off
to keep those additional cards until you’ve been approved for financing.
How To Cancel Your Card
If you have decided that canceling
your
card is the best way to go, it’s best to consult the
company’s policies on how you actually do it. Some demand the
cancellation be in writing while others allow you to do the
cancellation over the phone.
If you decide to cancel by phone, it’s not
uncommon for the customer service representatives to try and persuade
you not to cancel. For about 15 minutes, they’ll do what they can to
convince you to keep your account open such as:
- Waiving the annual fee
- Reducing the interest rate
- Offering bonuses
- Including special offers
It couldn’t hurt to hear them out before you go ahead and cancel the
card. If they don’t appeal to you and really want to cancel that card,
go ahead and do it! You make the ultimate decision on whether or not
you keep the card!
Read the next article to learn about credit
card help for students.
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