Credit Card FAQ
Should I Close Unused Credit Card Accounts?
There are many reasons why people choose to close unused credit card accounts. They may already have enough credit available to them on other credit cards or they may have a better offer on interest rates on a newer card. Either way, closing an unused account makes sense if the card is new and there is no balance on the card.
Credit is borrowing money which you do not have. This money needs to be repaid back and there are laws that empower the credit card companies to sue for the amount owed to them. One has to be careful about choosing what credit card accounts can be closed without having a major effect on the cardholder's credit rating.
Reasons To Close An Unused Credit Card Account
One of the best reasons to close an unused credit card is to ensure that you can handle the amount of credit that is available to you. Too many credit cards means there is a bigger chance of debt accumulation and additional payments of annual fees and other charges. Closing unused credit cards can keep your credit report clean.
It also helps in keeping track of the credit cards that you actually use. By automatically lowering revolving debt, closing an unused account may help you qualify for better loans. Identity theft is a major problem in today's times and closing any unused credit card account helps in preventing identity theft.
Choosing The Right Kind Of Credit Card To Close
While closing an unused credit card account can be advantageous, you have to be careful about the kind of credit card that you choose to close. Here are some credit cards which you should AVOID closing:
- An account that has balance remaining on it - This could hurt your credit rating and thereby drive up insurance and interest rates.
- Your only credit card account - This is your source to establish a credit history and build a good credit rating.
- A credit card with available credit on it - It will decrease the amount of credit available to you and increase the amount of credit utilized. Ideally, you should not utilize more than 30% of credit available to you.
- Your oldest credit card - It is probably your best bet for a good credit rating. Old credit is always good credit.
- The card with the best terms - If you are receiving low interest rates, higher grace periods on a card that has a sizable credit limit, do not close the account.
Some credit cards which you can or should close are:
- Newer credit cards - Especially if you have older cards with available credit on them.
- Stolen credit cards - The creditors themselves will advise you to close the credit card account as it may put you at risk for identity theft.
- Unused cards with no balance on them — Such cards can be closed easily if you have enough credit available. If not, avoid closing the account.
The Right Procedure To Close An Unused Credit Card Account
The standard procedure to close any unused credit card account is to follow the three simple steps. After you have paid off the credit card completely (zero balance remaining), call the number printed on the back of the credit card. Tell the customer service representative that you would like to close the account. Ask for the address for mail correspondence and to whom the mail should be addressed. Stay firm on the decision to close the credit card account.
The next step is to write a letter to the credit card company stating clearly your name, address, credit card account number, request that they close the unused credit card account, and that it be reported as "closed by customer's request." This is very important. Mail the letter through certified mail and ask for a return receipt.
The final step is to request a copy of your credit report from all three credit bureaus after 30 days of mailing the letter. Check the entry regarding the closure of the unused credit card account and make sure that it reads "closed by customer's request." If the entry states "closed by creditor," go through the procedure again and make sure that customer service addresses the mistake.
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