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Canceling/Closing out a Credit Card. How to do properly?
Fruhmann
Registered User regular
Registered User regular
I got a Best Buy Mastercard. Worst store. Looking to pay off the card and close the account. I know i'm supposed request a letter saying "the account was closed at the card holders request and no outstanding payment was owed." so this way if my credit takes a hit from closing it out, i can contest it by showing them this letter.
does this make sense? anything else i'm over looking? how do i rid myself of this card and company without having adverse affects on my credit?
thanks!
does this make sense? anything else i'm over looking? how do i rid myself of this card and company without having adverse affects on my credit?
thanks!
Fruhmann on
0
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And closing a card doesn't have any adverse effect on your credit unless your carrying large balances on other cards. You want to have a lesser percentage of your total available credit being used than not.
Your credit isn't going to take a hit per se, but it will look less favorable if this was a card that's been open for years.
is sending a letter saying i requested the account closed standard practice or will the person i close with play dumb and/or not be able to do this?
Even if you just use it to buy a stick a 6 pack of soda every month, it's better to keep that card open regardless if it's a full credit card and not a line of credit. Especially if it's over 2ish years old.
Yearly fees.
what's the reasoning behind that? wouldn't closing this and seeing it was at my request be more appealing for future lenders to see?
If you're dead set on closing the account, there are a couple of things to note here.
You mention "paying off the card and closing the account". If you were carrying a balance on the old card, you may be better off closing it without getting a new one. The truth about it is, if you have to carry a balance, you are spending money you don't have, and paying a generally ridiculous interest rate to do it. This is especially true for rewards cards, which tend to have even high APRs. So, unless you absolutely need the credit card to get by, you are better off without if you are going to find yourself carrying a balance as it will remove the temptation to do this. If you simply meant paying the card for the month, ignore what I just said.
As for rewards programs, I would advise going for straight cash. While points may seem to be a good deal, the prices in point of items are generally inflated so that you don't come out far ahead of cash, if you do at all. On top of that, you will take much longer to see anything back as you often have to accumulate ridiculous amounts of points to get anything. Not to mention that cash is more versatile to begin with. You might want to take a look at Amex Blue Cash. The rates are pretty good and there is no fee (unless you come out ahead with the upgraded one). Only issue is running across the occasional mom and pop store that won't take it.
I'll have to look, but I'm almost positive mine does.
Fruh, because lenders like seeing credit history. Basically they want to see that you can keep open, and pay on time for a long period of time. And you are removing proof that you can do this from your credit history. Now this does not matter if: A) you do not plan on buying a car any time soon on any sort of loan, or
For lenders certain types of loans require you to have 3 lines of credit open or recently open. Lines of credit include car payments, credit cards, and student loans or other loans. With a record of you paying this on time every time. This is partially why removing a line of credit will hurt you in the short run.
Now if you are paying some sort of fee, then it is probably wise to ditch the card in the long run. Your credit score will recover with the new card.
Assuming your balance is paid in full, you will look more appealing to creditors as having no debt (meaning you pay your bills) with an active card. Carrying a balance doesn't do shit for your credit report.
So pay off your card, get the new card with cash rewards (Amex blue is a good one like was suggested, this pops up on mint.com for me all the time), then close the best buy one.
Unless, of course, you're paying a membership fee like Esh is suggesting, then close it immediately and pay off immediately.
Yeah I know mine didn't, but I can't remember if what I had was the in-store card or the credit card.
i do want to establish good credit, i just don't want to do it with this card. i think i can take the two year hit and start to establish credit through other means
gespo can probably give you more accurate information there.
If you want to know for sure what's on your credit report just goto annualcreditreport.com and see. It'll only show payment history on: credit cards, mortgage, student loan, and auto loans. It will also show reported delinquencies from other creditors (that phone, electricity service you forgot to cancel 4 years ago), but not payment history. There may be others who report monthly, but those are the only debts I have experience with.
Your FICO score will take a hit if you close a revolving credit instrument (credit card) that was in order or on good terms. It will: reduce the number of lines of credit in good standing you have open, if this is your oldest credit card it will reduce the age of the eldest line of credit (still active and in good standing), it will reduce your credit to income ratio (which may or may not be a bad hit, but for most non-affluent people with few lines of credit it will be a negative), and it may increase your credit utilization ratio. These things will all likely negatively hit your score, regardless of the remarks on record with CRB's. A lot of creditors really don't give a shit what notes you might have; it's all the score and down payment.
If you're set on cancelling the card just call them to close the account and you'll pay on agreed upon terms, then check after you've paid it off that the account is closed. If you've already paid it off you can call them up and cancel. If you want to do it in writing your cardholder agreement will explain how, but it'll take longer and they'll do it on the phone or online.
If you don't use it then it's likely not hurting you. If you just dislike BestBuy I understand why you'd cancel, but if you don't use it you're not making them any money, and cancelling it can only hurt you, especially if it's your oldest line.
The point is, keeping this line in good standing IS establishing good credit. If you want another card with rewards, apply for one. Don't cancel this one as it will likely directly inform whether or not youget another one. From a credit-building perspective, closing an old line that you're not having problems with (aren't carrying a huge balance or delinquencies) can only hurt you.
Points -> cash, statement credits = fine
Points -> airline tickets, overpriced electronics, other useless crap = generally not worth it.
For example, on my card, I can get with my "rewards dollars", a 1 to 1 statement credit (25 rewards dollars = $25 off my statement), or I can trade 219 rewards dollars for a Nook Touch that retails at $99. Even if I wanted the Nook, I could simply get $219 in statement credits, buy one at a store, and pocket the difference. In fact, after looking around, every single thing I can get outside of cash is at AT LEAST a 100% markup. Yet, people still fall for that crap. Even if you can get equivalent value, which is almost never, it's equivalent value on crap you probably don't need and wouldn't have bought otherwise.
Cards that do cash back (directly, or indirectly through points) will usually list the percentages you get back on different types of groceries (groceries, gas, restaurants, everything else, etc.) Check your recent credit card bills and see which works best for you. Some things to look out for that they put in the fine print are things like maximum cash back per month. With some others, you have to spend a minimum amount before your purchases start qualifying for cash back. Others give something like 5% in one category but it rotates throughout the year, so make sure the rotating categories are all things you use. Just make sure to read everything before you choose. Also keep in mind that if you buy things at the "wrong type" of places, percentages go by the type of store, not what you bought. For example, buying gas at Costco, or groceries at Walmart would likely go in to the "everything else" category on most cards instead of gas and groceries like you would think. Also, if it's points to cash, make sure find out the exchange rate and do the math and see how much you are getting in actual dollars. Not all "points" are of equal value.
Cancelling this one will hurt your credit score, but that may or may not be relevant in your life situation right now. If you do want to get a new rewards card I'd go and see what were my best options (some site like creditcards.com may expose you to what various rewards cards might be available in your area for your credit situation) and go back to one of my non-store card-issuers and see what options they may have for conversion to a rewards-style card. If they cannot give you one you like then apply for your new rewards card before closing this line.
Personally I do an airlines rewards card, and I try to put everything I can on it. Means I can get 2 tickets for international travel every 3-4 years. Though there are rewards cards programs where they change up the terms so you can game it for better rewards, but I figure I don't spend enough on discretionary items to really make that worthwhile.