Often, after paying off a balance transfer card or even a regular credit card, you may take out a pair of scissors and snip the card in two because you no longer want to keep the account open and you don’t want to overspend—so you make your financial life less complicated.
You must exercise care when deciding which credit card to terminate. Regardless of your reason for canceling a credit card, it’s important to follow specific steps to close the account to minimize any damage to your credit score.
Determine your reasons for canceling a credit card
One of the most common reason people cancel a credit ]card is to control excessive spending or because the terms of the cards—annual charges—interest rate and other fees—are too high. Credit cards that cost you an exorbitant unnecessary amount of money makes sense to cancel.
The Association of Independent Consumer Credit Counseling Agencies (AICCCA) vice –president David Jones also recommends closing credit card accounts with high interest rates attached to them. You should also seek out cards where the bank waives any annual fee. Another reason for closing a credit card is when you are opening an account for a credit card with more favorable terms.
In addition, new cards usually have low introductory rates and other enticements for transferring credit card balances.
Consider the affect on your credit
Before you cancel a credit card determine the potential effect on your credit score. Information from “open accounts” can remain on a report indefinitely. When you cancel the card, the account information remains in your credit profile. Positive information remains on the account longer than negative credit data. If you close the account with a zero balance and no negative activities associated with the card, the positive payment information stays on the credit report for ten years from the date reported.
Negative information, such as late payment or foreclosure must be removed from your report after seven years. After you cancel the card, potential creditor look at your balance-to-limit ratio, which calculates what percentage of available credit you use. SO may want to get a credit increase on another credit card to time when decide which credit card to cancel.
Keep old credit card accounts
Another important consideration in deciding which credit card to cancel concerns the age of the account. Card with longer positive histories provide more benefit to your credit score.
Therefore, if you choose to close an older account understand that it could have a negative impact. The effect of closing a seasoned account varies from person to person and depends on your personal credit history. For example, a young adult with a short credit profile could receive more of a negative impact compared to a fifty-year old who has a longer credit history.
Don’t close these cards
Evaluating which credit card to cancel should becomes an easier task when you know the accounts you should never cancel—even if the account is delinquent
- Cards with a balance
- Only credit card with an available balance
- Your only credit card
- Oldest credit card
- Card with best terms
When you make a final choice for which credit card to close, contact the customer service department of the card issuer and inform them of your intention to close the account.
Send a follow-up letter to the company that includes your name, address, and last four digits of your credit card number, a reference to your phone call to have the account closed as of such-and-such a date and to report the information to the credit reporting agencies.
This article was first published on http://moneyprime.com.