Paying Off Balance Versus Closing Credit Card Account

Q: What is the best way to close a credit card account? We want to pay off this credit card in full.

What procedure would you use, so the credit card company cannot say we still have a balance? We want to close the account, but we don’t want to have the account reported as closed with a remaining balance.

A: Paying off a credit card can be a little tricky. Often, a consumer will call their credit card company and ask for a payoff balance, only to find the next month that there is a remaining finance charge.

Here’s how to do it so this doesn’t happen to you. Once you get your next statement, call the credit card company and verify that if you pay the balance on the statement you will be able to pay off the balance in full. Then, write a check to pay off the card.

Then, wait for confirmation that your check has cleared. If you use your credit card company’s free online bill payment service, you would receive this confirmation almost instantly since the money is automatically debited out of your checking account.

Place another call to the credit card company to make sure there are no remaining finance charges on the credit card. Once you get the “all clear,” you can send a letter closing the credit card account. It’s always best to close an account by writing a letter to the credit card company, although you may want to follow up with a phone call to be sure the account has been closed.

However, if you are able to bring the balance to zero on the card, and there is no annual fee to keep the account, you may wish to keep the account open.

Why? One of the things that credit reporting bureaus look at is the length of time you have had various credit accounts open. The longer you have a credit account open, the higher your credit score (provided you’re making at least your minimum payments on time). So, it might help your credit score to continue to keep an account open, even though you no longer carry a balance on the card.

One of the greatest misconceptions about credit scoring is the idea that it’s good for your score to carry a balance. If you want to give your credit history a boost, you should pay off your cards, and then keep the credit card account open but without a balance.

For more information, check out one of my favorite credit scoring sites, myFICO.com.


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One Response to Paying Off Balance Versus Closing Credit Card Account

  1. helpyourself says:

    Here’s why you should keep your credit card accounts open: manipulation.

    Perhaps you enjoy being syncope, a slave, or a complete fool, who knows. Don’t worry, the next time you wake up, you will be paying interest. (“What will be happening while I’m asleep?” you ask. [1] First you will be infiltrated, persuaded to own or keep that credit card. “Just cut it up or don’t use it. OK?” A few dreams later … “No? OK, then just keep it minimally active, just to make sure the creditor keeps you in good standing on your ‘credit repore’”. A little later … “No? OK then, just pay off your balance in full, every month.” Gee, starting to sound like a cycle already. “Don’t worry, you are strong now, perhaps you just settled your debt [congrats!], you will be OK.” … Tick, tock, tick tock. “No? Well then, don’t worry, just keep your ‘credit utilization ratio’ below 30%” … “No? Well then just pay off the highest % one first” … “No? Well then …” Hmm. So many voices, or is it just ‘one’? (perhaps). Well anyway, you get the idea: this is your evolution [or devolution] as a person. Remember to listen to the “gurus”, I mean they are paid to advise the masses [just not you personally] and help keep the economy “growing” [ehem]. “Keep those credit cards, keep up those FICO scores!” How do economists get their numbers, how do they know if the consumer uses cash or credit [ie. imaginary money] to buttress the economy? Ohh they do know. They need the masses, they need you! Could this be global? Hmmm. “But people are honest, right? The banks are honest and righteous!”)

    What is interest? Funny you should ask. By one definition, interest means roughly curiosity, fascination, or allure (beginning to sound familiar?). By another: money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. How dry (it must be working for somebody). But also funny how the two definitions are innocently melded inside your brain. Back to the dry. Interest is really the blood that the machine sucks out of your body, your life, or worse the life in your family (if you have one). But then again, it’s not unlike communism if you think about it. Perhaps you want to support it. That $1500/mo in your blood is feeding the masses (see above). It’s petrifying how a 30% rate can become tolerable. Learned helplessness? Or do you think you could spot a slave? There is a certain inscription by a set of gates you should know about. Nobody is actually going to wisper in your ear: “Sell your soul.” They will just gently persuade you to keep your credit card (perhaps you could stick it in your ‘freezer’, LOL). When pigs fly.

    Your goal should be no cards, no interest. Close down your credit card accounts if you seek hope or desire freedom. (.)

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