Lifehacker put me onto this a really dope post on when (and how) to get rid of your credit cards. We’re in a recession and we need to get (keep) our money right. The full article is on Get Rich Slowly.
Why you should cancel your credit card:
- Reduces the risk of identity theft.
- Reduces your bookkeeping.
- Prevents you from abusing them.
- Puts you in control of your finances. (Don’t underestimate the power of this.)
How you can cancel your credit card:
- Call to cancel the account. Check with customer service to be sure your balance is zero before you start the process. After you ask to cancel your card, the sales rep may try to talk you out of it. Be prepared to stand your ground. And take notes!
- Send written confirmation. Using your notes, write a letter and send it to the card issuer. You can find a sample credit card cancellation letter at The Dolans.
- Check your credit report. After you receive confirmation that the card has been cancelled, it may take several weeks for the change to be reflected in your credit report. It is your responsibility to verify that your report is accurate, so keep tabs on it.
peace,
e.
{ 7 comments… read them below or add one }
Thanks for raising this issue. I have been trying to make the decision to cancel cards that I have paid off. Why? Because I will just add something else to them and then have to pay them off again. Why not just pay for the stuff directly, lol.
I will have to check out the other blog.
Good call, E. Credit card companies and sometimes even the credit score folks try to scare you into not canceling cards, claiming that it will actually bring down your score. Calling to cancel is SOOOO empowering. Let’s go Sassy Ladies – goodbye to debt!
I’ve heard that “its gonna bring down your credit score” thing too.
It’s all about cancelling the urge to spend, not the card.
The credit score thing is actually true. According to TransUnion, the most important factor affecting your credit score after payment history is your debt to limit ratio. Leaving these cards open leaves your total credit limit higher, thus reducing this important ratio.
If you can resist chargin up the card, leaving it open is only going to help you. If you can’t resist chargin it up, then you got another issue to deal with.
^^^^ co-signs Manny
Perhaps a better option would be cutting up your credit cards… i.e. if you have 2 cards, cut them in half. No card, no charge. But your credit line is still open – you just can’t access it to add more debt. Continue to pay off the card until you have zero balance. From there, its your decision to spend or not to spend… but the goal, like Manny said, is to resist charging it up.
Manny – question: If you cancel your credit cards, you try to buy a car or a house in the future… how does that play out or look to banks?
And speaking of banks, can you explain the $700-billion bailout? lol
@Leah,
everything that happens on your credit report stays relevant for 7 years, so if you don’t plan to buy anything until 7 years afterward it doesn’t matter at all…
Otherwise, it is true canceling credit lines will ding your credit score, but the damage your score takes will not ruin your chances for car or home ownership, unless you cancel several cards or ones with the highest credit lines.
The problem is that anyone checking your credit will assume you cancelled them because you have bad spending habits– which would mean that you are a bad risk. I don’t know why this is the automatic assumption; I have cancelled credit cards in the past because I didn’t like the terms (I still *hate* you, Bank of America…) My overall credit score stayed good because it was only a small fraction of my overall credit. And cancelling accounts is still never as bad as having actual debt.
But what looks best on your account is to have more credit, and be in good standing as far as repayment. Someone with 8 credit cards that only uses one occasionally, never approaches the spending limit and pays off the balance each month will have much better credit than someone who only has one and constantly maxes it out then pays just the minimum monthly payment required. But, you should only have as many credit cards as you can keep track of, nothing blows your good credit like identity theft.
I heard a senator on the news who had a good explanation for the bailout, he said it’s basically a crudely scrawled ransom note that says “we have your retirement money held hostage, give us 700 billion dollars or we will kill your 401K”
He was against it….
i know equifax reports the length of your credit history and the average age of an account. So keeping the first card you ever had is a good thing. But what about canceling the most recent card you got? Wouldn’t that improve your average account age?