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.
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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.
Millions of Americans are forced to declare bankruptcy every year, but even if you’re one of those people, you can begin immediately to rebuild your damaged credit by taking a few relatively easy steps. Here are some ideas to help you get on with your life after bankruptcy:
1. Pay all of your bills on time from now on.
Make a pact with yourself never to be late with a payment again. It may require some stricter discipline than you have been used to, but it will go a long way toward reestablishing your creditworthiness in the eyes of potential creditors like banks and credit card companies.
2. Monitor credit applications.
Although it will be tempting to do because you’ll be eager to get another credit card, resist the temptation to apply for a lot of new credit. Making a bunch of credit applications all at once actually can lower your credit score and make it harder to secure new lines of credit.
3. Get a Secured credit card.
Whether you love them or hate them, credit cards are a necessity in today’sworld, even if you don’t actually plan to use them. There are many things you simply can’t do if you don’t have a Visa card or other major credit card, such as rent a car, since rental companies will require you to show them a credit card even if you’re paying cash. Since that’s the reality of the modern world, look into getting a secured credit card.
Secured credit cards require you to put a certain amount of money into an account (typically between $300 and $500), which is then considered as collateral for your purchases using the card. You’re then allowed to charge any amount of money on your card, up to the amount you have in your account, and repay it in monthly installments.
The nice thing about secured cards is that they look no different from any other card, so you can use them as ID or to make purchases (as long as you don’t go over your limit) and they allow you to begin reestablishing your credit by showing that you can make payments in a timely fashion, regardless of your previous history. As you begin to prove your creditworthiness, you may be rewarded with an increase in the amount you can charge that’s above what you have in your account.
A good place to begin your search for your first secured credit card is through your local credit union. They’re often more flexible than banks, and a number of them will actually waive the annual fee that most secured cards charge. If you aren’t a member of a credit union, shop hard for your secured card, because there are wide variations in the terms, fees, interest rates, and requirements. Some companies will even charge you a fee just to apply for a card!
You can begin rebuilding your credit almost immediately following a bankruptcy, but it will take time and a commitment to handle your finances more carefully in the future. It just takes self-control and discipline.
Establishing credit and wisely managing your credit becomes easier when you know how. You’ll feel empowered by taking knowledgeable steps towards good credit, and you’ll be on your way to purchasing real estate and greater financial freedom.
If you plan to finance real estate, either as a home buyer or an investor, avoiding these common credit mistakes will help you with your credit score and save you money in loan costs. No matter what your dream castle looks like, avoid these common credit mistakes to turn your dream home into reality.
Aimee Semple McPherson’s castle in Lake Elsinore, CA
14 Common Credit Mistakes
1. Using expensive or undesirable types of credit (department store cards, finance companies) costs too much. Worse, these loan negatively impact your credit score.
2. Accumulating too many lines of credit or too many credit cards causes credit report remarks like “too much consumer credit.”
3. Only paying the minimum due keeps balances too high, which deducts point from your credit score.
4. Being maxed out on any credit card or line of credit causes deep drops in scores.
5. Taking cash advances costs higher interest and extra fees.
6. Exceeding limit and having to pay over-limit fees is a negative with creditors and causes “high proportional amounts owed” remarks on credit reports and subtracts credit score points.
7. Paying a day or more late causes unnecessary late fees and often increases interest rates.
8. Charging more than you can afford causes a snowball effect of amassing debt with no easy way to pay it off.
9. Letting someone else use your credit, such as co-signing a loan, raises your debt-to-income ratio and possibly adds “too many consumer accounts” on your credit report, which lowers your score.
10. Ignoring credit problems causes unnecessary negative impact. Talk to creditors before being late and make arrangements. This action heads off negative reporting to credit bureaus.
11. Failure to report address changes to creditors causes misplaced bills and late payments.
12. Using partial name, different names, initials instead of whole name, or forgetting Sr. or Jr. causes mix-ups. Use your full legal name to protect you from confusion with similarly named borrowers.
13. Failure to report name changes to creditors also causes confusion.
14. Not checking credit report frequently is one of the most common mistakes consumers make.
Copyright © 2005 Jeanette J. Fisher. All rights reserved. From the book Credit Help: Get the Credit you Need to Buy Read Estate.
Photo by Jeanette Joy Fisher taken in Lake Elsinore of home featured in Seven Secrets of Glorious Home Design by Jeanette Joy Fisher
What will YOU buy with your new credit?