It seems many consumers have been using their savings, which have been boosted by stimulus efforts, to good use towardpaying down their credit card debt. This has led card issuers to engage in promotions galore to lure back customers.
What if you have been lured intoapplying for a credit card and actually been approved, and later changed your mind for some reason? Can you then proceed to cancel your card account? Of course, you can cancel your card account anytime you choose, but you should think through the decision and weigh the consequences first.
Also, keep in mind that you will lose any welcome bonus you had your eye on. Issuers tend to frown on those who open and close their accounts within a year or less after acquiring it, with an eye to rewards, a practice called card churning.
Your credit score could drop
Before approving you for a credit card account, your issuer would have made an inquiry into your credit score. This sort ofhard inquiryhas the effect of lowering your credit score. It signals that you are likely going to take out additional credit.
The new credit that you would potentially take on introduces some uncertainty for lenders since it’s not clear what brought about the need for this credit and how you will handle it. That’s why a hard inquiry has a negative impact on your credit score. The impact will be greater for those without much credit history and data input, or a thin file, and less for those with a lengthier credit history and more historic input.
Also, if a number of hard inquiries are made because, say, you are looking to open more than one new credit card account, that will have a bigger impact than a single inquiry. This is different from if you are shopping for a mortgage loan and approached a number of different lenders. In that case, the scoring algorithm will consider a number of inquiries made within a defined “shopping period” as one inquiry that enables you to compare different loans.
You might even have been preapproved by a number of card issuers before they actually approve you. They would have made what is known as asoft inquiryinto your credit score. Since this sort of inquiry does not necessarily lead to credit being granted, it will not impact your credit score.
Your credit utilization may improve
In addition to avoiding a negative credit score fallout, even if it’s a minor one, you could also enjoy a positive credit score impact by holding on to your new card.
For one, it will boost the total amount of credit you have available to you, which will bring down yourcredit utilization ratio, or how much of your available credit you are using. Of course, this will hold good only if you are disciplined in not racking up additional debt on your new credit card.
Talk to your card issuer
At the end of the day, you may still decide to go ahead and cancel. This may be because when you actually got your card in the mail, your terms turned out to be not exactly what you expected. Perhaps the actualcredit limitis different, or theannual percentage ratedoesn’t appeal to you. You will find out such details bygoing through the fine print.
Even then, if you still want to hold on to the card, you could try talking to the issuer to see if it is negotiable about these aspects. Also, if you changed your mind about paying an annual fee, you could ask to downgrade to a different no-fee card from the same issuer.
If the issuer will not negotiate with you, you will have to cancel the new card much as you would any other card you hold.
How to cancel a card
You shouldcall the card’s customer service number and talk to a representative about how to close your account. Tell them you want to cancel your card and make sure there will be no other fallout from this closure. For one, if this is a card that carries an annual fee, make sure you are not responsible to pay this fee. Also, pay off any outstanding balance on the card and verify that there are no pending charges. That way you can avoid the specter of residual interest.
Keep a record of this interaction and ask for confirmation of the closure. The card issuer should send you a follow-up letter about the account closing. You could also check your credit report to see that the account has been closed.
Thecard issuer can also cancela credit card at any time. It may not even give you notice about the impending closure, particularly if you have been tardy with your payments or not otherwise sticking to your card agreement. The closure may be also because you have not used the card in a long time or are not willing to agree to a change of terms.
The bottom line
If you decide you don’t want to hold on to a credit card after applying and being approved by the issuer, you can still cancel your account. Think a bit about the consequences before you cancel. If you do decide to cancel, make sure to get a written confirmation of the account closing.
Contact me at[email protected]with your credit card-related questions.
