Close a credit card the wrong way can hurt your credit history. There is a right way to cancel a credit card as well as situations when you shouldn’t even consider it.

In everything, there is a right way and a wrong way. This includes canceling a credit card account.

But did you know that it isn’t always a good idea to cancel a card? Here are how to’s and how not to’s to consider.

It is not always in your best interest to cancel a credit card account. There are many reasons to do this but there is a right way to go about it. Doing it incorrectly can negatively affect your credit report and effectively lower your FICO score, or credit score.

The Right Way to Cancel a Credit Card Account

It is important to know how to close a credit card account and how it may affect your credit report.

First, do not close a credit card until it has a balance of $0 to avoid cancellation penalties.

The four steps you should take to properly close the account are:

1. Notify the issuer by phone.
2. Follow up the phone call with a letter to your credit card company.
3. Review your report and ensure it is accurate.
4. Repeat as necessary.

Make the Phone Call to Customer Service

The customer service number for your card issuer will be on the back of the card, on the statement or both. Call the customer service center, confirm your balance is $0 and inform the representative that you are canceling that card.

If your balance is not zero, do not alert the customer service rep of your intent to cancel the card. The company could raise your rate to the maximum allowed by law as a cancellation penalty.

You will probably be transferred to a department specifically suited to talk you out of canceling the card. It might be a good idea to listen for a moment. An offer to upgrade to a lower rate card or some type of premium for staying may be in the works, so just listen or a second or two.

In either case, carefully weigh the possible results of keeping the card open. If none of the offers appeals to you, just reiterate the desire to cancel.

Write a Follow-Up Letter

Follow up the call with a letter. It would be best to have a specific name to send it to. This letter should be sent via registered or certified mail. That way you will have signed proof that the company received your letter.

The letter should say simply that you are closing the account and your report should reflect the fact that you requested the account to be closed. Speed the process by giving your name, address and account number. Now wait a month and check your report again to ensure this account is closed.

Go here for a sample letter to cancel or close your credit card account.

Check Your Credit Report

Be sure the report states the account was “closed at customer’s request. This is important because if it says “closed by creditor’, that looks bad on you.

Be sure all of the entries on your report are accurate. After all, it is YOUR report.

To get a current copy of your credit report. www.credit.com

Why Not to Close a Credit Card Account

There are instances where you should absolutely not close a card:

1. Never close a credit card account that has a balance. Always pay the card off first.
2. Consider your credit to debt ratio (also called debt load).
   

   Credit to Debt Ratio is Credit Used divided by Credit Available. Example: $1000(used credit) / $4000(available credit) = 25% debt to credit ratio. Generally the lower your debt load, the better your credit to debt ratio will be - anything under 50% is considered optimal. If you close an account, consider how much higher it will send your credit to debt ratio.

3. Never close a credit card if you are looking for a loan or other to open other financial accounts.

When a credit card is canceled, that good history is gone and it will increase your debt ratio. Whatever you built on that card is now not reported in your FICO score (credit report).

So be very careful when you consider closing any card for any reason. In fact, unless the card has an annual fee, it’s probably a good idea just to leave it open and not use it.