I have a credit card that I don’t use very often and have been thinking about cancelling the account. Is this a good move?

If you are considering terminating a line of credit, firstly make sure that there are no outstanding debts on your card. If your balance is greater than zero, keep the account open until you pay it off in its entirety. Do not contact your cards issuer about closing the account until the balance is paid down, otherwise you run the risk of them increasing your interest rate. Some credit card companies will make a point of raising your interest rate to the maximum amount allowed as a penalty if you try to close the account with a balance still outstanding.

Keep in mind that if you intend to apply for a car loan or mortgage in the immediate future, you would be better off leaving your credit card account open to better your chances of qualifying for a prime rate. This is because credit scoring agencies examine a consumer’s debt-to-credit ratio when determining their score. The more available credit you have as compared to the amount of debt you are carrying, the higher your score will be. This is why, if you anticipate that you will be shopping around for a home or a car soon, the best move may be to not cancel any credit card accounts just yet.

Otherwise, if you feel sure about closing your account, contact your card issuer. Most credit card companies will allow you to cancel an account over the telephone. Prepare yourself for the customer service representative to attempt to talk you out of terminating the line of credit. You may be offered deals and incentives to keep the account open, such as the waiver of an annual fee or a card upgrade. If you are determined to shut down the account, politely decline their offers and ask your issuer to inform the credit bureaus that your account was “closed at customer’s request” so that your credit report will accurately reflect everything. Jot down the name of the representative you spoke to, and the date and time of day. Keep this along with the written confirmation of the account’s closure that the issuer will send to you in the mail. This way, should a problem ever arise at a later date, you have proof that the account was closed.