Sunday, 10 February 2008

Tips on credit card use, Part 3: Canceling your credit cards

The third part of the credit card series shares a couple of tips on how to properly close your credit card account.
  1. Do not cancel your old credit cards with a large credit limit which you have owned for more than five-ten years – doing so causes the deterioration of your overall credit score which partly depends on the average age of your credit account balances. The oldest credit accounts prolong the average life of your total credit value, so canceling them automatically reduces the average life of the remaining credit accounts.

  2. If you do not use your credit card at all (which may happen with some retailer-specific cards), cancel it to reduce your overall credit exposure.

  3. If you do not need a large credit limit on a credit line, call your bank and check if reducing this limit will decrease your interest rate. If it does, then go ahead and ask the bank to reduce your credit limit and/or alternatively the interest rate on your credit line.

  4. If you do not intend to use your credit card, cancel your credit account by calling the credit-card issuer. Remember that merely letting your credit card expire does not mean that your account is automatically closed. In fact, it is not closed at all, and your bank may continue mailing you cash-advance cheques that in theory can be used by somebody else to draw cash against your credit account balance. Similarly, somebody who gets your statement or a replacement card, can make an online purchase pretending to be you.
    I had a similar situation with my Chase Visa card. The funny thing is that I never even authorized this card. It quietly expired in a box with my old statements, until 6 (!) years later I received a statement forwarded by my American friends (whose address I used as my emergency U.S. mailing address after I moved to Canada). The statement indicated that somebody in London, UK, (!!) used my unauthorized expired Visa card or relevant information to pay for some wild party entertainment. When I called the bank, feeling really frustrated, the customer rep was not even surprised and cancelled the charge without much argument. Well, I think I was lucky enough to receive this statement; otherwise, my U.S. credit history would have been damaged because of such stupid unauthorized charge that shouldn’t have happened in the first place had the bank had proper security procedures in place. So remember – letting your card expire does not mean that you credit account expires as well – you have to call and cancel it formally by phone.

  5. After you cancel your credit card account, call the bank again later to double check that it has been indeed closed. My wife cancelled her MBNA Canada Mastercard several times and each time after cancellation they kept sending her convenience cheques and replacement cards. Only one final call, where she had to call the manager and ask for the written confirmation to be mailed, stopped this practice. Afterwards, she started regularly receiving their applications for a new card, but that’s another story. So, after you cancel your card, ask for a written confirmation to be mailed to your home address, so that you are not liable for any accidental charges in the future.

  6. After you cancel your credit card, write down the time of your call, a name of a customer service associate who processed a cancellation transaction, and a confirmation number of this transaction that you can ask for from the associate. Keep this information in your personal-finance file, along with a written confirmation of a cancelled transaction (if any) and basic information about your cancelled account (account #, your billing address, a bank’s contact information). If later a need arises, you can always retrieve this information quickly to defend your position/claim or contact a bank.

As you can see, there are a lot of little things that you need to pay your attention to when using your credit cards. Once you take them into account, your credit cards will reward you with numerous benefits.


shannon said...
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Paul N said...

Hey! This is actually a pretty darn good blog! You don't really see much of that lately.(Found you through Blogoshpere)

BEIT said...

Shannon: I agree that keeping inactive accounts is not a good idea. If one has too many of them, then they should definitely be let go, one by one. However, it is important not to do very radical steps by closing everything at once since it will have some adverse impact on your personal credit rating, at least in the shorter run.

Paul_n: Thanks for your kind words. It is nice to hear that somebody reads my mumbo jumbo reflections.