Canceling a Credit Card the Easy Way
In today's credit-heavy society, many
people are giving thought to canceling one or more
credit cards they either don't use or have become
dissatisfied with. However, it's not as simple as you
might think to cancel a credit card, partly because
those companies would like to keep you as a customer,
and also because canceling cards may adversely affect
your credit rating. Here are a few suggestions for
canceling cards safely and easily.
First, make sure your card is paid off in full. If it's
not paid off completely, you may incur some financial
penalties, including having your interest rate raised to
the maximum allowable amount, which can reach more than
20%. It's much easier to cancel a card that has no
outstanding balance remaining.
After the card is paid in full, call the issuing company
and notify them that you are canceling the account.
There's generally contact information on the back of the
card. When you call, you'll be in for an interesting
conversation, because they don't want to lose your
business. They'll often offer a lower percentage rate or
a chance to bump up to a higher grade card. If their
offer is attractive enough, this is a good time to be
flexible and to think about canceling another card that
won't give such great terms!
If you listen to the company's offer and still decide to
cancel the card, the next step is to send a letter to
the company to tell them that you want your credit
report to show that you were the one who canceled the
card on your own. That's an important distinction,
because you don't want it to appear as if they canceled
you, which will look bad to future creditors when they
pull up your credit report. Don't skip this step,
because it may mean the difference of getting credit or
not later on.
You can check your credit report later by getting your
free annual report and making sure the information you
requested is on there. The report must show that you
canceled the account. You don't want to see the words
"closed by creditor," which would indicate that the
company closed the account and not you. If you see a
mistake, immediate send a letter demanding the
information be changed to reflect your voluntary closing
of the account.
Canceling Credit Cards Impact on Credit Scores
On the other hand, there may be times in your life when
you don't want to close credit accounts, such as
situations in which you're trying to improve your credit
score. For instance, creditors will sometimes look at
having lots of available but unused credit as a positive
thing. Let's say that you currently owe $3,000 in credit
card debt, but you still have $10,000 in available
credit. If you cancel a card that has a $5,000 limit,
that would lower your available credit to $5,000 in the
eyes of future creditors, making it appear as if you're
more financially strapped than you really are. In other
words, you owe $3,000 with a limit of $5,000 instead of
owe $3,000 with a limit of $10,000.
Consider how long you have had a credit card before
closing the account. Credit cards with a long
history count more in your credit score than newer
accounts which may have better interest rates. If you
have an aged credit card, negotiate with the issuer for
a better interest rate so you can keep the older card
instead of the newer one. So use discretion when you're
thinking about a canceling card just for the sake of
canceling it.
Why You Need Strong Credit
I hope you don't fall into the
trap of thinking you need strong credit to buy luxuries
with credit cards. The only reason you need credit cards
is to build credit to buy a car, a home, and investment
properties. In fact, financial planners think you should
pay cash for your cars and only have credit cards for
emergencies. My friend Annette Bau, CFP®, even thinks
you should pay cash for houses. Imagine that!
If you don't have cash to buy
houses, build your credit to finance multiple investment
houses. Make yourself an investment plan for life and
start with your credit--even if you have good credit.
Many beginning investors think that they have good
credit because they have a decent credit score. However,
credit for mortgage financing differs from consumer
credit of personal finance, department store, and credit
cards.
Six Mortgage Qualification
Requirements
- Credit Scores
- Income
- Debt-to-Income Level
- Personal History and Employment
- Down Payment
- Cash
Determine your weakest area and
make a plan for your future. Your financial goals could
look like this:
Organize debt
and credit
Meet
mortgage requirements
Purchase
home
Purchase
second home
Purchase
investment properties
Of course, this simplified version
doesn't come close to a complete financial plan.
Consider where you are now, where you want to be in one
year, three years, five years, ten years, and in twenty
years. Then take it one step at a time to achieve your
dreams.
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Evaluate Your Financial Situation
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Perfect Balance of Credit for Mortgage Financing
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Easy Way to Set Up an Investment Fund
Payment Plan to Raise Credit Scores
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Debt Reduction Plan to Raise Credit Scores
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