There are several reasons you may choose to close your credit card account. Read on to learn some of the things that you should include in a letter to close a credit card account. However, before you close your account you should first be aware of the potential negative impact that closing your credit card account can have on your credit score. If you decide to go ahead and close your credit card account, then you must do so in writing. This article will explain the reasons for closing an account, the impact closing an account may have, and the specifics that a letter requesting closure of an account must include.
Reasons to Close your Credit Card Account
Most people do not voluntarily close a credit card account because of the convenience and security that credit cards can afford. Typically, once you have a credit card you should keep it and use it responsibly and occasionally. For example, if you have five credit cards and you only use two of them often, that does not necessarily mean you should cancel the other three cards. Instead, you should consider using those three cards a couple of times a year and then pay off the balance promptly. (Read the next section for the reasoning behind this!)
On the flipside, depending on your credit history, if you have a lot of credit cards that you don’t use and you want to open a new card that you will use, you may want to close some of those accounts so that you are not presumed to be a credit risk carrying so many open lines of credit.
Sometimes people will choose to close a credit card account because they decide they don’t want to pay the annual fees, or perhaps there is an extreme difficulty with customer service. Many times a good reason to close a credit card account is if you have very little self-control and cannot trust yourself with a budget. If your spending is completely out of control and you have maxed out all of your cards, it may be time to stop using your credit cards. However, depending on your credit score and your credit history, you may be better locking the card up or cutting it up and not using it but still keeping your account open.
The Negative Impact of Closing your Credit Card Account
Closing your credit card account can, potentially, have a negative effect on your credit score because of the way credit scores are calculated. A big factor in determining credit scores is your ratio balance, or the amount of your debt in relation to the amount of your credit limit. In essence, the greater the difference between the two the better impact it will have on your score.
For example, a $0 credit balance on a card with a $5,000 credit limit looks great on a credit history report and will increase your credit score. If you close this credit card account, you remove this “good” factor from the equation and risk dropping your score considerably.
A note on the above example: A $0 balance usually looks good on a credit history report; but it looks even better when that same card gets some occasional use and also gets paid promptly. This shows responsible credit card use and gets favorable consideration.
Another negative impact of closing your credit card account is that, if you have a current balance with the credit card, you may affect your current interest rates. This is oftentimes true if a card was issued with a promotional rate. Closing your account while you have a balance could trigger a default rate which is significantly higher than the rate you have now. Check the terms and conditions of your credit card before making any decisions. If closing your account is going to negatively affect your credit report or change the terms of your rate, you may instead want to consider keeping the account open and just locking the card away to avoid inappropriate use of it.
What your Credit Card Account Closing Letter Must Contain
If you decide to close your credit card account, then the only way to do it is in writing. Cutting up the cards or telling a customer service representative during a phone call will not be sufficient. You need a letter in writing so that the credit bureaus know that you voluntarily closed your account and not vice versa. This is very important for credit reporting purposes.
Your credit card terms and conditions will give you instructions for how to close your credit card account. Typically, your letter will be addressed and mailed to your credit card company and it must include your name as it appears on your credit card, your full address, and your account number. The letter can be as simple as a couple of lines requesting that your account be closed. You should also request confirmation in writing so that you have it for your records as well.
It is easy to close a credit card account; you just need to be aware of the results of your actions. Check your credit report and also review the terms and conditions of your account. If you determine it is in your best interest to close the account, then do so with a simple letter to your credit card company. If you are closing your account in order to open a new credit card with better benefits or rates, let the Credit Card Chaser help you find one online now for free without obligation. Get started using our free credit card finder now!
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