5 Things to Do Before You Close Your Credit Card

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Credit cards are incredibly valuable financial products. They can offer you cash back on your purchases or you can earn points towards a dream vacation. However, there are times when a credit card is no longer useful. It could be because benefits have been cut, or maybe there is no longer value in paying the annual fee.

When we get to this point, we start thinking about closing the account all together. Before you close your credit card, though, make sure you consider the following tips.

Call to Negotiate with Your Issuer

If the benefits change on your credit card, then there isn't a lot that can be done. However, if you are discouraged by the interest rate or you no longer want to pay an annual fee, then there might be some options.

Start by calling your card's customer service line and tell them your situation. Let them know that you would like to have a reduction in your current interest rate. If you have been on time with all your payments, make this a point. A lot of times they will be willing to work with you so that they can keep you as a cardholder.

The same goes with annual fees. Inform the customer service agent that you are not sure there is value in keeping a card with the annual fee. Occasionally they will waive the fee and even give you bonus reward points. Credit card issuers are fighting for your business and willing to do anything to keep you as a happy customer.

Use Your Credit Card Points

If your call with customer service doesn't go as you hoped and you still want to cancel your credit card, there are a few things to consider. First, do you have a balance of reward points? If you do, then you need to find out what will happen to those if you cancel your card. The last thing you want to do is lose something you have worked so hard to earn.

If you have a co-branded card with an airline or a hotel, then your points will be safe. They are automatically transferred to the airline or hotel each month. However, if you have a credit card with a transferable points program, like American Express Membership Rewards, then you would lose those points if nothing is done with them.

There are a few different options. You can either transfer the points to one of the program's transfer partners, you could cash your points in for a statement credit or for gift cards, or you could apply for another card within the same program. If you have Membership Rewards points and you take out another card that earns Membership Reward points, then your current point balance will stay active.

Understand How Closing Your Credit Card Affects Your Credit

You always hear people talking about how applying for credit cards can have an effect an individual's credit. The same is true when you close a credit card. The effect can actually be greater when closing a card. The reason for this is that you will be decreasing the total amount of credit you have available. This will increase your credit utilization ratio which makes up 30 percent of your credit score. When closing a card, if your ratio increases above 30 percent, then there is a chance you might see a hit to your credit score.

Another aspect of your credit score if the total length of credit history that you have. When you cancel a card, then this will be decreased. While it's not as detrimental as a high credit utilization ratio, it can still cause your credit score to drop.

Move Your Automatic Payments

Most of us have automatic payments set up for our different monthly bills. Before you close a credit card, make sure you go back through your last couple of statements and spot the different automatic payments that you currently have set up. Make sure you get each of these moved to a new card. The last thing you want is a missed payment, which could lead to a late fee and a possible suspension of services.

Keep Checking for Refunds

When you return a purchase to a store, most of the time they require a refund to go back on the same credit card that it was purchased with. Because of this, keep looking at your online statement to make sure a refund doesn't hit without you knowing it. If it does, then you can request that money from the credit card issuer.

The Bottom Line

If negotiating with your credit card issuer doesn't give you the results you were hoping for, then canceling your card might end up being the best thing for you. Just make sure you transfer any reward points that you have and fully understand the effect on your credit score when you close your credit card.

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