How to Properly Close a Line of Credit

A line of credit (LOC) functions as a flexible financial tool, allowing individuals to borrow, repay, and re-borrow funds up to a predetermined limit. This article guides you through the process of closing a line of credit, from initial preparations to post-closure verifications.

Preparing to Close Your Line of Credit

Before closing your line of credit, undertake several preparatory steps. First, confirm and settle the outstanding balance. Ensure the line of credit has a zero balance, including any pending transactions, accrued interest, or fees not yet reflected in your most recent statement.

Review the original terms and conditions of your line of credit agreement. This document outlines any specific clauses related to account closure, such as potential early closure fees or inactivity charges. Understanding these terms allows you to anticipate and address any costs associated with closing the account.

Gather all relevant account information. This includes your line of credit account number, the lender’s contact details, and recent statements. Having personal identification details readily available will also streamline communication when you contact your lender.

Closing a line of credit can affect your credit score. Credit scoring models consider factors such as credit utilization, which is the amount of credit you are using compared to your total available credit. Closing an account reduces your total available credit, which can increase your utilization ratio and potentially lower your score, especially if you have high balances on other accounts.

The average age of your credit accounts also plays a role in your credit score. Closing an older line of credit can decrease the average age of your accounts, which might have a negative impact. Closing an account also reduces the number of open credit lines, which can alter your credit mix, another factor in credit scoring.

Initiating the Closure Process

Once preparatory steps are complete, formally request the closure of your line of credit. Contact your lender via phone, online banking, in person, or by written letter. A direct phone call is often the most efficient way to begin.

When communicating with your lender, clearly state your intention to close the account completely. Be explicit that you wish to terminate the line of credit, not just restrict access or suspend its use. This clarity helps ensure the closure is processed correctly and avoids any misunderstanding.

Some lenders may require specific documentation or forms to formalize the closure request. The lender will provide instructions on how to obtain and complete these forms, typically available through their website, by mail, or at a branch.

After submitting your closure request, obtain written confirmation from the lender that the line of credit has been closed. This confirmation can be an email, a letter, or a document provided in person. This written record serves as proof of the account’s termination.

After Your Line of Credit is Closed

After initiating the closure process, verify the account has been closed and accurately reflected. Regularly check your final statements and online banking portal to confirm the balance is zero and no further activity or charges occur. This ongoing monitoring ensures the closure was fully processed.

Periodically check your credit report to confirm the line of credit is reported as closed with a zero balance. You can obtain a free copy of your credit report annually. Review the report for any inaccuracies related to the closed account and dispute any discrepancies if needed.

Once confirmed closed, safely destroy any associated access tools. This includes cutting up credit cards, shredding unused checks, and securely disposing of any other physical means that could be used to access the account. This prevents unauthorized use and reduces the risk of identity theft.

Retain all correspondence, confirmation letters, and final statements related to the closure. Organizing these documents in a secure location provides a comprehensive record of the account’s termination. This practice is beneficial for your personal financial records and can be useful if any questions or issues arise regarding the closed line of credit.