Like most things in life, there's a right way and a wrong way to close a credit or bank account. The right way will help make your life easier while the wrong way could cause a lot of headaches and actually damage your credit.

Closing a Checking Account

Follow these simple steps to ensure that everything goes smoothly.

  1. Open a new checking account so that you'll be able to set up direct deposits and bill payments with the new account before closing the old account.
  2. Inform employers and automatic bill payment centers about the change.
  3. Stop using the old account.
  4. Wait a month for all your transactions to be recorded and all your checks to clear.
  5. Make sure all your checks have cleared your old account. If any haven't, call the person or company they were made out to and either get them to cash the old check or issue them a check from the new account and have them destroy the old check.
  6. Once all your checks have cleared the old account go into the bank and close the account. Be prepared to show proper identification. They will give you the balance that remained in the account, which you can deposit into your new checking account.
  7. Properly destroy and dispose of the checks and ATM cards for the closed account; shredding these materials is a good idea.

Here's what you don't want to do:

  • Close an account without having a new one already open to avoid lag time in receiving payments as well as being able to write checks.
  • Close an account without making sure all the checks have cleared on it.
  • Close an account before paying off any overdrafts as this will put a mark on your credit record which will last five years and you may find it very difficult to open a new account at a bank during that time.

Closing a Credit Card Account

Follow these simple steps to close a credit account:

  1. Switch all your automatic monthly charges to a different credit card.
  2. Stop using the credit card.
  3. Pay the credit card off.
  4. Call the company to cancel it and request that they report it to credit reporting companies as "closed at the request of cardholder."
  5. Follow up your phone call with a letter confirming that you are closing your account, include the name of the person you spoke with over the phone and emphasize that it should be reported as "closed at the request of cardholder."
  6. Wait 30 days and then check your credit report, making sure that you see the reports from all three major reporting companies: Equifax, Transunion and Experian. Check to see if the account is correctly listed as closed at your request.
  7. If the account is listed and does not say "closed at request of cardholder," send a new letter with a copy of your old letter to the credit card company via certified mail and ask them to correct the mistake.
  8. Check your credit report again in 30 days and repeat as necessary.

Here's what you don't want to do.

  • Forget to transfer all automatic payments to another card.
  • Forget to check your credit report and assume that everything went according to plan.
  • Close the account if it's going to hurt your credit. One of the things that goes into the calculation of your credit score is the ratio of the amount of credit you've used (the total of all your outstanding balances) to the total amount of credit available. If the first number stays roughly the same but the second number becomes much smaller it could lower your overall credit score.

That said, having too many credit cards, even if the balances are all zero, can weaken your credit. If you're going to pay off and get rid of one credit card, choose one that's close to being maxed out so it won't hurt your overall number ratio.

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Tagged as: Consumer Law, Consumer Fraud, closing credit card, consumer fraud lawyer