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Should You Close a Credit Card Account?

by Barbara Marquand

If you watch daytime talk shows, you've probably seen this: A man or woman ceremoniously cuts up credit cards one by one as a financial guru preaches freedom from credit card debt.

In some cases, getting rid of a credit card might be a good idea--but not always. Before you take scissors to your credit cards, consider the following:

• Credit Score Impact

Getting rid of a credit card sounds like a good step if you're mired in debt. However, part of your credit score is based on something called a credit utilization ratio. That's the amount of credit you use compared to the amount available, and you want a low ratio--less than 30 percent on credit cards. By canceling a card, you cut the amount of available credit and increase the usage ratio, as long as other balances remain the same.

• Credit Card Spending

In some cases, canceling a credit card might be the best move in the long run, even if it initially hurts your credit score. When credit card debt is out of control, sometimes the only way you can control spending is to remove temptation.

Credit Card Rates and Terms

If your credit card company offers you terms you don't like, see if you can get a replacement card first, then cancel the old card. Under the new federal credit card regulations, credit card companies can't increase interest rates on current balances, and during the first year of an account, they can't hike the interest rate on future purchases. After your account's first year, they must give you notice 45 days before boosting the interest rate on future purchases, and they must give you the right to opt out of the card and time to pay off the current balance under the old terms.

• Credit Card Longevity

Choose the newest credit cards to cancel if you have too many credit cards. A long account history is good for your credit score.

• Credit Card Fraud

You must cancel a credit card number if someone has stolen your account information. Talk to your credit card company to cancel and get a replacement card.

• Canceling Credit Cards: It Takes More than Scissors

Call your credit card company and send a letter to cancel a credit card, and ask for confirmation in writing that the account is closed.

Published 03/02/11 (Modified 07/09/14)

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