DebtFreeGuru.com's - Tip of the Week - Monday, April 14, 2003

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How To Cancel A Credit Card -- The Right Way
  (as seen on CompuServe)

There's always a right way and a wrong way to do things, and that goes for canceling a credit card.

Whatever your reason for getting rid of a credit card (more on that later), you'll want to make sure you do it thoroughly and that no harm is done to your credit report.

First, don't try to cancel a card while you're paying the balance. Cancel the card only after you have paid off the balance in full.

"There isn't a need to cancel that account until you're through with it," says Jean Brannan, community outreach coordinator for Consumer Credit Counseling Service in West Palm Beach, Florida. She adds that you have to employ self-discipline and stop using a card while you're paying off the balance.

OK, let's say you have paid off a card's balance and you want to cancel the account. Brannan suggests that you do the following, in order:

  • Notify the card issuer by phone.

  • Follow up by notifying the card issuer in writing.

  • Get a copy of your credit report and make sure it's accurate.

  • Repeat, if necessary.

Notify the issuer by phone
Your issuer's customer-service number will be printed on the back of the card, on the monthly statement, or both. Call that number, confirm that your balance is zero, and notify the customer-service representative that you're canceling the card. If you truly intend to cancel the card, hold firm if the rep tries to talk you out of it by promising lower rates or fees.

If you can, Brannan says, find out the name of someone to send a confirmation letter to. At the least, ask for the address.

Follow up with a letter
Write a short letter to the card issuer. "If you can get a name so you can send it directly to someone, that is better," Brannan says.

The letter should say that you're closing your account and that you want your credit record to reflect the fact that you requested that the account be closed. Provide your name, address and account number.

Send the letter by certified mail or return receipt requested. That way you can prove that the card issuer received your letter, Brannan says.

Then, wait a month.

"You can allow as much as 30 days for the closing of your account," Brannan says. "Then get a copy of your credit report and make sure it says 'Closed at customer's request' and that (the account) actually has been taken off your credit report."

Check your credit report
You don't want your report to say the account was "closed by creditor," because that reflects negatively on you.

If the card issuer mistakenly reported that the issuer, not you, closed the account, you'll have to return to the beginning. Call the customer-service department to report the mistake, follow up with a letter sent by certified mail (include a copy of the letter you wrote requesting that the account be closed), and check your credit report again.

"Remember that a credit report is your credit history," Brannan says. "The information is submitted by lenders, but it's your individual responsibility to make sure it's correct."

Believe it or not, it's not the credit bureau's responsibility to make sure that your credit report is correct. Credit bureaus report what creditors tell them. So if your credit report is inaccurate, don't ask the credit bureau to fix it. Ask the creditors to correct inaccuracies and update the credit bureaus.

Experts recommend that you check your credit report annually to spot inaccuracies and detect identity-theft problems. Check your credit report before buying a house or car so you can correct any problems before applying for a loan.

Why to cancel a card
"One of the reasons people would want to close out credit cards is if they want to purchase a home," Brannan says. "To have a lot of available credit is not to your advantage."

In other words, if you have, say, three cards with low or no balances, a mortgage lender considers that "potential debt." If you have a lot of potential debt, a mortgage lender might not be willing to lend all the money you need because you could take out a mortgage and then run up your credit cards, endangering your ability to pay all your debts.

And some people get in over their heads in debt and realize that they need to rid themselves of the temptation of credit cards.

"You might want to close a credit card because you've re-evaluated your budget and you knew you were overextended," Brannan says. "Or if you are in debt and trying to get out of debt."

And there's nothing wrong with canceling a card because it's a bad deal.

Whatever the reason for canceling a credit card, it pays to do it right.

DebtFreeGuru.com - Tip of the Week - Monday, April 14, 2003

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