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Does Canceling a Credit Card Affect my Credit Score?

Creditors frown on applicants who have a lot of open credit. They can sometimes cause your credit score to lower if you have too many open lines of credit. So keeping many cards may mean that you’ll be turned down for other credit—perhaps credit you really need. And if your credit applications are turned down, your file will contain inquiries from the companies that rejected you. Your credit file will look like you were desperately trying to get credit, something creditors never like to see.

If you want to close some accounts, here are some rules to follow:

• Close accounts you don’t need. You can close an account even if you haven’t paid off the balance. The card issuer will close your account, cancel your privileges and send you monthly statements until you pay off your balance. Or contact the bank whose card you are keeping and ask it to transfer your remaining balance on the account you are closing to the account you are keeping.
• Close accounts on which you are delinquent — otherwise the credit card issuer may close them for you. If you’re delinquent on all your accounts, keep open the most current account.
• If you pay your bill in full each month—that is, you don’t carry a balance—close the accounts with the highest annual fees. Make sure that the accounts you keep open have a
  grace period—a 20-25 day period each month in which you can pay off your bill and not incur any interest.

• If you carry a balance, close the accounts with the highest interest rates and shortest grace periods. Also, read your contract to understand the credit card company’s billing practice. Interest may be calculated on the previous two months’ balance, the average daily balance for the month or your balance at the end of the billing cycle. Keep the cards that charge interest on the balance at the end of the billing cycle.

How to Cancel a Credit Card

If you want to close a credit card account, make sure you do it the right way.

• Write a letter to the company and request a “hard close.” If you don’t do this, the company may give you a “soft close,” which means new charges can go through, even though you asked that the account be closed. With a soft close, you are susceptible to credit card fraud.
• Also request, in writing, that the credit card company report to the credit bureaus that your account was “closed by consumer request.” Accounts that are erroneously reported as “closed by creditor” will hurt your credit rating.
• After 30 days, check your credit report to ensure that it reflects that the account in question was “closed by consumer request.”
  

If you’ve been through bankruptcy or other tough financial times but your problems are behind you, or you’ve never had credit, you may be considered an excellent candidate for a credit card. Your creditors won’t tell you this. It’s an industry secret they’d like to keep that way.

Credit card issuers send out approximately three billion solicitations each year to American consumers. This number represents an enormous growth since the early 1990s. While the number of American adults hasn’t risen that dramatically, the number of American people now considered creditworthy has. And all of these credit cards can take a big toll on your free credit report.

Credit card issuers operate in a fiercely competitive environment. People who have been through bankruptcy are now considered great credit risks—their debt is gone, they have a history of using credit and they can’t file for bankruptcy again for another six years. In fact, a Texas bankruptcy judge asked a couple who filed for bankruptcy to keep track of how many credit card solicitations they received during the two-year period after they filed their case. The total: 53, with credit limits ranging from $100 to $20,000. Talk about damaging to your credit report.

And people who have been through bankruptcy aren’t the only people with stuffed mailboxes. New immigrants, low-wage earners and others traditionally kept out of the credit world are being invited to participate at astronomical rates, all of which will have a dramatic impact on their free credit report.

Beware of all these offers. They are not meant to be flattering nor are they a sign that you can afford more credit. Credit card issuers are looking for consumers who will run up big balances and pay a lot of interest. And in return you’ll end up with some stuff you don’t need and a low score on your free credit report.