How to Cancel Your Credit Card the Right Way

When it comes to canceling your credit card, you don't want to just call up one day and cancel. Because of the impacts canceling a credit card can have on your credit score, it is important to go about the cancellation in the right way. Here are some things to consider if you plan to cancel your credit card.

Is it a good idea to cancel your card?

First, you need to determine whether it is a good idea to cancel your credit card. When you close an account, it lowers your available credit. If you are planning to make a major purchase, such as a home or a car, you don't want this. A lower amount of available credit will mean a lower score for a few months, and that can affect whether or not you get a loan, and how much interest you pay if you are approved. Before you cancel a credit card, make sure you aren't applying for anything major for at least six months.

Steps to canceling your credit card the right way

When you are ready to cancel your credit card, you should follow four steps. These will help you minimize the impact to your credit score (although that impact will still be there):

1. Pay off your credit card: If possible, it is best to have your card paid off before you cancel it. The fact that you are closing an account while you still have a balance has a subtle effect on your score, and is reflected in your credit report. Whenever feasible, it's best to have a $0 balance on your card when you cancel.

2. Call the credit card issuer: Once your statement shows that you don't have a balance, call the credit card issuer and let the company know that you are closing the account.

3. Follow up with a letter: Your phone call needs to be followed up in writing. Your name, address and account number all need to be included. Let the issuer know that you want your credit report to show that the account closure was customer-initiated. Keep a copy for your records, and send the letter certified mail (yes, you'll have to pay extra). You'll get a receipt back from the post office proving that the credit card issuer got the letter.

4. Check your credit report: After 30 days, check your credit report. You get one free report from each of the three bureaus every year at www.annualcreditreport.com. Make sure that everything is reported as it should be. If the issuer reported the closure as being initiated by the company, write a letter to the bureaus and to the card issuer requesting that the mistake be fixed.