Declining new credit cards could cost you

Experts outline right way, wrong way, to close accounts

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WEST PALM BEACH, Fla. - Paying with plastic is the American way.

According to Federal Reserve statistics, more than 176 million U.S. consumers use credit cards.

"No doubt about it -- credit cards are a convenient way to pay for goods and services," said Greg McBride of

But if you're enticed by a special offer to try a new card, McBride said tread carefully.

"Let's say you get a little flyer in the mail, 'Apply now. Rates as low as 9.99 percent.' Now, it doesn't mean just because the envelope has your name on it it that you're getting 9.99 percent. It's based on credit approval," said McBride.

McBride said consumer may not know their annual percentage rate or credit limit until they actually get the card in the mail.

If the terms turn out to be less than desirable and you decide not to use the card, the next step is crucial.

"A lot of people tend to think that if they don't pull the sticker off and call that 800 number to activate the new card, no one will ever know they have it and that's not the case," said McBride.

To cancel, first call the credit card company, then follow up with a letter sent standard mail documenting the day the account was closed. Send the letter certified with a return receipt to verify delivery. State in the letter that the account is being closed at the consumer's request.

"That tells other creditors that you were the one who decided to close that account -- that the creditor didn't decide based on poor payment habits by you," said McBride.

Even if you don't plan to use the new card, McBride said you may want to keep the account open if it comes with a high credit limit.

"Your total debt to available credit ratio may look a lot better having that higher credit limit and you don't want to close out your credit card and inadvertently ding your own score by making it look as if you're a riskier credit holder than you are," said McBride.

Remember, too, that applying for credit can have a negative impact on your credit score.

"It's not wise to apply for several cards within 6 to 9 months of getting a mortgage or a car loan because those inquiries could cost you in the form of higher interest rates on those loans," said McBride.

Every credit inquiry impacts your credit score for one year and stays on your credit report for two years.

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