Cut It Up

Posted by gtong on February 5th, 2010

financial

How often do you use your credit card? Using it a responsible amount can improve your credit score, but not being able to pay it off can hurt your score fast. This can be a big pitfall for certain people. Credit cards give you a temporary loan, but you still have to pay it off at the end of the month. If you’re not careful, the interest rates could end up catching you in a debt trap!

Are you tempted by a credit card? Or is one just sitting in your wallet doing nothing? If you decide to cancel your credit card, take these into consideration to not to decrease your credit score:

Keep it a secret: A big mistake that many people do, they cancel their card too early. The amount of debt and credit that you have is part of your credit score. Cancelling a credit card before you get everything taken care of can hurt your score. So keep it to yourself first, and make sure everything is handled before you cancel.

Credit vs. Debt: How much credit and debt do you have currently? Your credit score will take into account your debt to credit ratio a good guideline is to stay at 30%-45%. Be sure that by cancelling your card, you’re not changing your ratio too much.

Pay it off: Cancelling a card with a balance on it will lower your credit score. So be sure to wait for your statement to pay it off before you cancel.

Wait some more: Wait at least one additional billing cycle after you think you have paid off your bill. If you had a debt on your card, there may be residual interest that can show up on the next statement. Some charges that you may have made close to the end of the previous billing cycle might show up on the next statement as well. So make sure your balance is at $0.00 before you cancel.

Say goodbye: Contact your card issuer using the number on the back, or if it’s through a bank you can go to your local branch. Double-check with your card issuer that the balances are paid and everything is ok with the card, as long as it looks fine, cancel the card. Be sure to note the time, date, and name of the person that helped you for added security.

Have you ever cancelled a credit card? Do you have any additional tips?