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Personal-finance expert Liz Pulliam Weston

The Basics

Held hostage by your credit scores?

If you're tired of being bullied by credit card issuers, don't tell them to kiss off just yet. First know how and when to do it right -- without trashing your credit scores.

By Liz Pulliam Weston
MSN Money

I'm proud of the role I've played in helping people understand credit scores and how these three-digit numbers affect our financial lives.

Lately, though, I'm thinking maybe I did my job too well.

I'm hearing from too many people who are afraid to tell their credit card companies to take a hike after being slapped with rate increases or annual fees.

There are a lot of e-mails like this one, from Betty A.:

"If I'm notified that an annual fee will be assessed and I cancel the card, doesn't this hurt my credit score? I don't need (the card) but am afraid to cancel and ruin my good score."

It's wonderful that people now understand that closing accounts can't help their credit scores -- and might hurt them.

But that doesn't mean you should never close a card, particularly if you have solid credit scores, plenty of other accounts and a good reason to do so.

Heaven knows, credit card companies are giving us plenty of good reasons lately. Issuers are raising rates, lowering limits and adding fees, including annual fees and -- my personal "favorite" -- inactivity fees for people who don't use their cards enough.

When not to close an account

There are, of course, times when you really shouldn't close a credit card account if you can possibly avoid it:

  • You're in the market for a major loan. When you're seeking a big loan such as a mortgage or auto financing, every credit-score point may count in helping you get better rates and terms. Hold off on closing accounts until after your loan has closed.
  • You're trying to resuscitate a battered score. You probably want to avoid shuttering accounts, particularly credit card accounts, until you're well into the 700 range. Read "7 fast fixes for your credit scores" and "Raise your credit score to 740" for advice on how to accomplish that. You particularly want to preserve your oldest and highest-limit accounts when you're in credit-improvement mode.
  • You have only one or two credit cards. Closing an account in this case may dramatically alter your so-called credit utilization ratio, which is the credit you're using compared with your open, available credit limits. Reducing that gap substantially can really hurt your scores. If you feel strongly about wanting to close a card in this situation, consider opening another credit card before you shutter the existing account. For more about why you need to diversify your credit, read "5 tips: Protect your credit scores now."

Many people I'm hearing from aren't in any of the above categories. They have good credit scores (defined lately as FICOs of 740 and above) and several other cards, and they aren't seeking new credit. Closing a single account is unlikely to have a huge impact on their scores, even if they're shuttering their oldest or highest-limit accounts.

In other words, these are the last people who should be worried about telling their card issuers to take a long walk off a short pier. Yet they are.

And I wouldn't put it past the credit card companies to exploit those fears.

Before you tell your bank to take a hike

Card issuers know that their most desirable customers, the ones with the great scores, are likely to be concerned about preserving those scores. Card companies are probably banking on those good customers meekly accepting whatever fees, rate increases or other changes issuers want to impose.

Saying no sends a powerful message to credit card issuers that there's a limit to what you'll put up with from them. If enough of their good customers walk out the door, the card companies might reconsider some of their most egregious actions.

Video: A more creditable credit card

If you're ready to take action, here's what you need to do:

  • Know where you stand. Before you tell an issuer to kiss off, make sure your credit is as good as you think it is. You can get a general idea of your credit standing from MSN Money's credit score estimator, which uses Experian's Plus score ranges. Or you can buy one or two of your FICO credit scores, the ones most lenders use, at myFICO.com. (You can, of course, close an account even if you don't have excellent credit, but I'd recommend not doing so unless you're sure you won't be applying for a loan in the next year or so.)
  • Give the issuer a last chance. Explain that you have better options (you can peruse credit card offers based on credit quality at CreditCards.com) and plan to switch your business to a card that has a lower rate and/or doesn't charge stupid fees unless the issuer backs off and rescinds the change. If you don't get satisfaction, ask that your account be closed.
  • Put it in writing. Don't trust the phone reps to follow through on your request to close the account or to pass on to the higher-ups your explanation of why you're closing it. Take matters into your own hands by writing a letter to the issuer explaining exactly why you closed the account. Send one copy to the address indicated on the back of your statement and another to the card issuer's chief executive. To help you out, here are the CEOs' names and addresses for the nation's largest credit card issuers:

Let the CEOs know

American Express

Citi

CEO Kenneth Chenault

CEO Vikram Pandit

American Express

Citigroup

World Financial Center

399 Park Ave.

200 Vesey St.

New York, NY 10043

New York, NY 10285

--

--

Discover

Bank of America

CEO David Nelms

CEO Kenneth Lewis

Discover Financial Services

100 N. Tryon St.

2500 Lake Cook Road

Charlotte, NC 28255

Riverwoods, IL 60015

--

--

Capital One

HSBC

CEO Richard Fairbank

CEO Niall Booker

Capital One Financial Group

HSBC Financial Group

1680 Capital One Drive

26525 N. Riverwoods Blvd.

McLean, VA 22102

Mettawa, IL 60045

--

Chase

CEO James Dimon

JPMorgan Chase

270 Park Ave.

New York, NY 10017

The great thing about solid credit scores is the power they give you to get a good deal -- and to say no to a bad one. Take that power, and use it well.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board and helps middle-class families cope at Building a Brighter Future.

Published Dec. 2, 2009

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