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Note

These steps are for disputing improper charges, not for fighting over shoddy merchandise. Your credit card may offer some sort of protection if your new computer is a lemon, but you'll need to read your card agreement to know your rights. Save the dispute process outlined above for billing errors.

How and When to Cancel a Card

If you have trouble with compulsive spending (Curbing Compulsive Spending), it's best to cancel your credit card accounts. Don't just cut up the cards—cancel them. This will buy you time to learn to manage credit responsibly without an ever-present temptation to spend.

Even if you don't have trouble managing credit, you still may want to close an account from time to time. Whatever your reasons, be aware that canceling a credit card may ding your credit score (http://tinyurl.com/cc-close). (Your Credit Score has more about credit scores.)

Part of your credit score is based on how much of your available credit you actually use (this is called your utilization ratio). When you close an unused card, this ratio jumps because you're using more of your available credit; and when the ratio jumps, your credit score goes down. Also note that the longer you've had an account, the more you'll affect your credit score by closing it.

Despite this warning, there are several arguments for closing unused accounts. Doing so prevents you from abusing credit, reduces the risk of identity theft, and makes bookkeeping easier.

Whether these factors outweigh the potential damage to your credit score is for you to decide. When I was struggling with debt, I canceled my accounts, and I'm glad I did. It gave me time to learn about money without the temptation to spend. Now that I can manage my finances responsibly, I carry just one personal credit card.

Note

If you think you'll take out a major loan (like a car loan or a mortgage) in the next year, don't risk dinging your credit score by canceling credit card accounts. If you're worried you'll be tempted to spend if the accounts are open, try freezing the cards in a block of ice (really!) or putting them in a safe deposit box.

Canceling a credit card is easy, but if you decide to do it, do it right. Here are a couple of things to keep in mind:

Close one account at a time, even if you want to close several accounts. Start by canceling cards that charge you fees. Also, it's better to cancel new cards before old ones. Finally, consider keeping cards that offer good rewards programs.

Before you cancel a card, pay off the balance or transfer it elsewhere. Never try to cancel a card that you still owe money on. If you do, you might end up paying nasty fees and high interest rates.

When you're ready to cancel a card, follow these simple steps:

Call your credit card company. Check with customer service to be sure your balance is zero before you start the process. After you ask to cancel your card, the sales rep will try to talk you out of it; be prepared to stand your ground. Take notes about things like the time you called and who you spoke to.

Send written confirmation. Using the notes from your phone call, write a letter and send it to the card issuer. Here's a sample credit card cancelation letter: http://tinyurl.com/dolans-letter.

Watch your credit report. After you receive written confirmation that your card has been canceled, it may take several weeks for the change to show up on your credit report (Your Credit Report). It's your responsibility to make sure the report is accurate, so keep tabs on it.

Once you're certain the account is closed, cut up your card. Hurrah!

Should you cancel your cards? Only you can make that call. Do what makes sense for you and your situation. If you think it's important to keep a high credit score and you're sure you won't abuse them, then keep the accounts open. But it's a mistake to keep your credit cards if having them will lead you deeper into debt.

Your Money And Your Life: No Credit Needed

Mike Iannantuano is 29 and has