Why closing a credit card is never as easy as applying for a new one
It’s key to know all the ins and outs, dos and don'ts when cancelling your credit card
Dubai: You would normally have no reason to think why it shouldn’t be easy to close a rarely used credit card. However, a procedure you first thought would be simple, most often turns out to be one that’s frustratingly prolonged. Here’s why that is and what you should know when cancelling your credit card.
When you dial your card issuing bank’s customer support, you would face questions on why you want to close the card, which would likely lead to you being persuaded to not cancel it. They may even offer you incentives to stay. Only then would you be transferred to the unit that handles cancellations.
“Like subscription services, it’s a common practice to be dissuaded from cancelling your credit card or any banking product that you’ve regularly subscribed to,” said Essam Kabeelali, a UAE-based consumer credit industry researcher and advisor.
“Lenders or card issuers will try to talk you into keeping the card mostly because they understandably don’t want to lose you as a customer. If you’ve done your homework and still want to cancel, just stay focused. Only when you stay resolute is the closure procedure initiated.”
To prevent your financial health from snowballing deeper in such debt, financial planners and debt restructuring experts have widely reiterated that the sooner you stop using credit, the sooner you can pay off what you owe and cancel your card.
How to call your bank or issuer and cancel your credit card
“Once your card is fully paid off, call up your credit card’s customer service number. Make sure they know you’re cancelling your credit card account – not that you’re maybe thinking or wondering if you could,” said Parthiv Patnaik, a Dubai-based former banker with nearly four decades in the industry.
“Right off the bat, convey your certainty in cancelling your account. Be ready to stand your ground as customer service representatives have been trained exactly for not letting you off the hook too easily. They’ll do all they can to keep you on the line and try to change your mind.
“Don’t be surprised with responses like – ‘You’ll lose all your reward points’, ‘Your credit score will drop’, or 'No more cash-back bonuses'. Once they realise that you’re not budging, they’ll try freebies like 'We’ll give you 5,000 airline miles', 'What if we waive your annual fee?' or even, 'How about no fees?'"
Patnaik went on to also detail how he has come across several customers struggling to get their point across. “When telling them you want to close your account doesn’t work, it doesn’t hurt to switch to another representative. They’ll do it eventually – when you can’t be convinced of otherwise,” he added.
It’s crucial to get confirmation of card cancellation in writing
Kabeelali agrees that the most important part when calling your bank to cancel your card is to get the cancellation in writing. “No matter what you do, you want written confirmation from the credit card company that your account is officially closed. You need to see the evidence,” he said.
“It also helps to keep your own record of any conversations you’ve had with the credit card company. Be as detailed as possible, which will come in handy just in case the credit card company tries to give you any trouble down the road.”
Don’t be surprised with responses like – ‘You’ll lose all your reward points’, ‘Your credit score will drop’, or 'No more cash-back bonuses'
When questioned on what details are required to prove your cancellation, Kabeelali advised listing out the date, time, names, and any confirmation numbers you received. “Make sure to request a written statement that shows your balance is all clear and your account is completely closed,” he said.
“Use your notes to write a ‘certified letter’, which requires a signature upon delivery, as requested by the sender to check that the letter has been delivered to the right person. This gives you a much-needed proof the credit card company received the letter with the details of your cancelations request.”
Risk of not getting card cancellation confirmation in writing
Aside from receiving a final statement post-cancellation detailing any remaining charges or credits that need to be settled, it is also possible residual interest charges might pop up on a new credit card bill if you don’t ask for written confirmation that officially notifies you of your account being closed.
“’Residual interest’, also often known as trailing interest, can be a tricky aspect to using a credit card. Even if you think you have paid your balance off in full and you don’t make any other purchases, interest might show up on your next statement,” explained Patnaik.
“’Residual interest’ or ‘trailing interest’, occurs when you carry a credit card balance from one month to the next. It builds up daily between the time your new statement is issued and the day your payment posts. Since it accrues after your billing period closes, you won’t see it on your current statement.
“So, after paying any balances statement to avoid future issues, and once the cancellation is complete, keep a copy of the confirmation email or closure notification from the bank for your records. This serves as proof of cancellation and can be helpful in any disputes or unexpected charges that might arise later.”
Your ‘credit utilisation ratio’ – which is the percentage of how you owe (Dh2,500) on how much your total credit limit is (Dh10,000) – is 25 per cent. If you decide to cancel the card with a zero balance, your credit utilisation goes up to 50 per cent as your total credit limit drops to Dh5,000.
“Given that most lenders prefer you to have a credit utilisation of below 30-35 per cent, by closing a credit card account, you put yourself in a much higher credit utilisation range which can adversely affect your credit score. This is why it is often discouraged,” added Kabeelali.
Key takeaways
While experts generally recommend you don’t cancel a credit card to boost your chances for a loan later, if you’re being charged a high annual fee or interest rate, it can be beneficial to close a credit card. However, often, that’s easier said than done.
But before you ask to close your account, double check that there is no balance. If you were carrying a balance from month to month, there may be residual interest, which accrues in the time between when your bill was sent and when your payment was made.
After you paid off your balance and redeemed any rewards, it’s time to initiate a card cancellation request with your card issuer or bank. Once you’ve confirmed the balance is zero, tell the representative you’d like to permanently close your account. But often that’s easier said than done.
“You are often presented with a retention offer from your card issuer, so reconfirm that you want to cancel your account. Also, convey that you want it on record that the account is being closed at your request, which ensures it won’t look like your account was closed by default,” added Patnaik.
“Always make sure you get key information: date and time you requested the cancellation, name of the person you’re speaking to and a mailing address where you can send a written cancellation letter or an email to the card-issuing bank.”