How to Get Rid of Credit Cards Without Hurting Your Credit Score

Your credit score is influenced in part by your credit utilisation, which is the percentage of available credit that you are currently using. When you close an account, your available credit decreases and your utilisation rate increases. It is, however, possible to cancel a credit card while causing minimal damage to your credit score. Pay off your credit card balances to keep your utilisation from rising. You can also open a new card and transfer the balance. You should, however, consider other options.

Method 1 Paying Down Balances Before Closing

1. Make a note of your current utilisation rate. Take a look at all of your credit card statements and figure out what your credit limits are. Add them all up to get your total credit available.

Then go through and total up all of the balances. Divide the outstanding balance by the available credit.

If your credit limit is $15,000 and your total balances are $3,000, your utilisation rate is 20% ($3,000 divided by $15,000 equals 0.2).

2. Pay off your entire balance. You can’t close a credit card until the balance is paid off. As a result, you should make a commitment to pay off the balance as soon as possible.

Make and stick to a budget if necessary.

If you do not have the funds, you can contact your card issuer and request that the card be frozen. This will prevent you from making additional charges.

3. Pay down the balances on your other credit cards. To protect your credit score, you may need to pay down the balances on your other cards in order to keep your utilisation from rising. Consider the following example to see why:

Amy is the owner of three credit cards: A, B, and C. She wishes to complete A, which has a high interest rate. Each of her three credit cards has a $2,000 credit limit, giving her a total of $6,000 in available credit. Card A has a balance of $500, while Card B has a balance of $2,000. Her current utilisation rate is approximately 42 percent ($2,500 divided by $6,000).

If she closes Card A, her available credit will be $4,000 and her total balance will be $2,000; however, if she closes Card B, her available credit will be $4,000 and her total balance will be $2,000. This gives her a 50 percent utilisation rate. As a result, Amy’s credit score will suffer.

Amy can reduce her utilisation rate by paying off the $2,000 balance on Card B.

Amy should, ideally, pay off all balances before closing any cards.

4. Redeem all of your rewards. If you have a rewards card, the rewards will most likely be lost when you close the card. As a result, if possible, you should redeem all of your rewards.

Some cards make redeeming rewards difficult. For example, you may be able to redeem only if you reach a certain amount. Some cards, on the other hand, only allow you to redeem points once per year. In these cases, you may need to postpone closing your account if you want to keep the rewards.

5. Avoid cancelling all of your credit cards. Closing one credit card may have a minor impact on your credit score, but closing all credit cards will have a significant impact. This is a drastic approach to debt management, and you should consider alternatives such as credit counselling.

6. To cancel, please call. Look on the back of your credit card for the number. When you call, ask the customer service representative to confirm that the balance is zero. Inform the person that you want to close your account and request that the account be reported as “closed at the consumer’s request.”

The representative may inquire as to why you are terminating your account. You can explain your reasoning or simply say, “Oh, I don’t need the card.” It is your right to close an account, so don’t let them talk you out of it.

Make a note of who you speak with, as well as any other pertinent information (day, time, substance of the conversation, etc.)

7. Please send a letter. If the customer service representative makes a mistake, it is a good idea to follow up with a letter. Request that the account be closed “at the consumer’s request” in your letter. Include your name, account number, and contact information in your message.

In addition, expressly request that they send you a confirmation letter. You’ll need something written down.

Send the letter certified mail with a return receipt requested, and keep a copy for your records.

8. Confirm that the account has been cancelled. Wait about a month before requesting a copy of your free credit report. Check to see if the account has been closed and if it was closed at your request.

If the account is still active, contact the card company again. Send a follow-up letter with a copy of your initial letter.

If there is no indication that the account was closed at your request, contact one of the credit bureaus to dispute the error.

9. If necessary, postpone closing your card. If you are applying for a mortgage or a car loan, you may want to keep your credit score as high as possible. In this case, you should hold off on closing your account. First, get a mortgage, and then focus on paying off your credit cards.

Method 2 Using a Balance Transfer

1. Look for a balance transfer credit card. If you can’t pay off the balance on the card you want to close, a balance transfer is a great option. Look for a new credit card by shopping around. Many credit card companies offer balance transfer cards with introductory 0% APRs for 12-18 months.

To qualify for the best deals, you must have a good credit score. In general, your credit score should be 720 or higher, but people with lower scores may still be eligible for a balance transfer card.

Compare prices. Examine the APR after the introductory period expires. Check to see if the card has an annual fee.

2. Examine the new card’s credit limit. If the new credit card has the same credit limit as your old card, you will keep your utilisation rate. If your credit limit is reduced, your utilisation rate will rise, lowering your credit score.

For instance, suppose you want to transfer a $1,000 balance from Card A to Card B. Card A has a credit limit of $5,000, whereas Card B has a credit limit of only $3,000 In this case, your utilisation will rise.

You should also be aware that when you transfer your balance, you will be charged a small fee. The fee is typically around 4% of the transferred amount, so your total credit usage will increase slightly as well.

3. Fill out an application for a new card. You can submit your application online. You will be asked to provide personal information, such as your Social Security Number and employment information.

When you open the card, transfer the balance. You’ll be asked for the balance you want to transfer as well as information about the card.

Opening a new credit card will almost certainly lower your credit score in the short term.

 If you absolutely cannot afford to have your credit score drop even slightly, you should postpone cancelling your credit card until you can pay it off in full.

4. Put your card away. You can close your card once the balance has been transferred. Confirm that the card now has a zero balance by calling. Then tell them you want to cancel the card and ask them to report the cancellation as “at the consumer’s request.”

Repeat your request in a letter sent via certified mail. Include all pertinent information, such as your name, address, phone number, and account number.

Examine your credit report to ensure that the card was properly closed and noted as such at your request. If not, then the notation should be challenged.

Method 3 Choosing Other Options

1. Request better terms. You may decide to cancel your card because the terms are no longer favourable. For example, the interest rate could be excessively high, or the issuer could charge an annual fee. If this is the case, you can contact the card issuer and request that the terms be changed.

Demonstrate your track record of being a good customer. Mention that you have never been late with a payment.

It costs lenders more to acquire new customers than it does to retain existing ones, so don’t be afraid to ask for a reduction in your interest rate or fees. They can only say “no.”

2. Accept the blow to your credit score. It’s sometimes best to just bite the bullet and cancel the card. For example, if you are getting divorced, you may want to cancel a joint credit card. In this case, your credit score may suffer a temporary drop.

Credit utilisation accounts for 30% of your FICO score. As a result, a small increase in utilisation will lower your score, but you can take actions that will raise your score. You should, in particular, aggressively pay down your debt, which will reduce your utilisation.

3. Put your credit cards in an ice bath. Rather than cancelling, simply place your credit cards in a bowl of water and place it in the freezer. Paying down your balances will help you improve your credit score.

You might want to meet with a credit counsellor to get your spending under control. They can assist you in creating a budget and identifying areas where you overspend.

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