If I Close a Credit Card Account, Will They Stop Adding on Interest, Etc?

Definition

Closing a credit card means terminating the account so your credit line is no longer available. Your Experian, Equifax and TransUnion credit reports reflect the closure. Lucy Lazarony of Bankrate.com advises waiting to close an account until it has a zero balance, but this is not always possible. Your card issuer might notify you of proposed changes in the account terms that you do not wish to accept, like a higher interest rate. You are free to say no, according to the Board of Governors of the Federal Reserve System, but the bank can then terminate your account.

Closing a credit card account with a balance, whether voluntarily or because you refuse to accept changed terms, does not excuse you from the interest charges or legitimate fees to which you previously agreed. The interest is frozen at the pre-closure rate until you pay off the remaining balance, according to the Board of Governors of the Federal Reserve System. Banks are allowed to raise your minimum payment once the account is closed to force you to pay it off entirely within a certain period.

Check your Experian, Equifax and TransUnion credit reports through AnnualCreditReport.com, the government-mandated website that lets you order free copies yearly, if you voluntarily close your credit card account, whether or not is has a balance. Make sure it reflects the closure and states that the card was closed at your request. Ask your bank to fix the account entry with the bureaus if you find any mistakes, Bankrate.com Dollar Diva columnist Dorothy Rosen advises.

Credit card closure often hurts your credit score by altering your available credit limits as compared to what you owe on your accounts. The impact is especially bad if the closed account still has a balance because that remains as part of your debt load, but you lose the account's credit line. Your owed balances should not be more than 10 percent to 30 percent of your credit card limits, according to MSN Money writer Liz Pulliam Weston. Card closure can put you out of that range. For example, if you have two credit cards with $5,000 limits and owe $1,500 on each of them, you are right at 30 percent. That jumps to 60 percent if you close one card.