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Many people consider credit cards a burden and get rid of it. This isn’t an easy step, but quite often very necessary to get rid of the credit card debt issues. If you search the term ‘how to settle credit card debt’ you will find one answer topping every list – cancel the credit card. There is a procedure for cancelling the credit card that every customer must follow. Often, banks and credit card companies have their own guidelines and rules regarding this and it is better to consult them. Some points that you should keep in mind before you cancel your credit card are:
· The Credit Card Score
Can your credit card score affect your chances of securing a credit card in the future? Yes! When you apply for a credit card, the company will look into your credit history to make sure you are capable of making the credit good. If your credit score is bad, your application may be denied. Pay attention to this factor before cancelling your credit card as it can backfire in certain conditions. More details are given at the end of the list.
· Pay Off or Transfer The Balance If you cancel your credit card without paying off or transferring the balance, you will end up paying more as interest and other charges. Always see the statements carefully before taking this step if you do not want to have problems. Cancellation can cost you more if you are under credit card debt.
· Contact The Company
When you plan on cancelling your credit card, you will have to contact the company and state your intentions to them. Your company might have a certain criteria and policy regarding credit card cancellation, which you must follow.
· Send Written Confirmation
You are required to send a written confirmation to the company, affirming that you wish your credit card to be cancelled, and you understand the effects it can have. Also mention in the letter that you request for the credit card cancellation, and it is not a result of any forgery or failure to meet the obligations. It is very necessary as your future creditors will often ask you for this letter. Always keep a copy of the letter with yourself for future references.
The Credit Score
And then the big question – the credit score. Does cancellation affect your credit score? As given above, it does and it does not. There are actually five factors that impact your credit score. They are: ¾ Your Payment History ¾ Number of Accounts ¾ Length of Your Credit History ¾ Number of Recent Credit Inquires ¾ Number and Types of Accounts All these factors together impact your credit score. When you cancel a credit card, it negatively affects three of the five above-mentioned factors. However, the main thing is the utilization of your credit. Credit utilization is concerned with the second factor, the number of accounts and the amount you owe on them. It is also called a debit to credit ratio, and is shown as a ratio of your used balance with the available balance. There is no preferable ratio, but it’s suggested to keep it lower. Many experts suggest using 25%-35% of the available credit to keep your score good. However, it must be remembered that a ratio that is too low (10% – 15%) will also adversely affect your credit history. There is no specific answer to this question and it mostly depends on the bank or the company you are applying to for a credit card from. There are also few other points that you must consider when cancelling your credit card.
The Other Options
Is this the only option you have? If you have more than one credit card, then it is highly recommended to get it cancelled, especially if you aren’t using them fully or properly. However, if you have only one credit card, then you should keep it, depending on how much you really need it. If you are frustrated with your overbuying habits and can’t think of any solution, then maybe turning towards a scissor and cutting that card into two is the only option that you have.
To learn more about this topic search for “how to settle credit card debt.”