scorecardresearch6 things to take care of before closing a credit card: A step by step guide

6 things to take care of before closing a credit card: A step by step guide

Updated: 25 Sep 2022, 03:00 PM IST
TL;DR.

There are situations when canceling your credit card might be advantageous. We discuss few points you might need to take care of a few things before you opt to cancel or close a credit card.

Your credit score is heavily influenced by the age of your credit account.

Your credit score is heavily influenced by the age of your credit account.

What word pops into your head when you hear the phrase "credit card"? It might be debt, a credit score, a credit limit, fines, fees, and so on. and sometimes you may find annoying and unpleasant to hear all of this.

A credit card may be a fantastic tool for someone who wishes to make limitless purchases, establish and maintain a high credit score, and receive incentives all at the same time if it is used appropriately. But there are situations when canceling your credit card might be advantageous.

However, you might need to take care of a few things before you opt to cancel or close a credit card. Let us discuss them step by step.

Cancel all the auto-payments

Before you close your credit card, you should also cancel your auto payments. Simply log into the bank's website and cancel any automatic transfers or bill payments that have been set up to go toward the credit card. The billing company will attempt to charge your closed credit card again if you miss this opportunity, but this will surely fail and you might end up paying a late payment fee.

Use up all your reward points

Claim all of the reward points you have on the credit card you're closing; this is a crucial additional step. Before making the request to shut or cancel your credit card, check all of the reward points that have not yet been used. By using the reward points, you may obtain discounts on gift cards or other incentives.

Clear dues before closing

Make sure to pay off the card's remaining balance before continuing. Keep in mind that you cannot request the credit card be closed before all outstanding balances have been paid. Paying down the entire sum and calling the bank for additional instructions is one of the finest methods to go about this. You may easily transfer the debt to another credit card, preferably one with a reduced interest rate, if you are unable to pay the remaining sum in full.

Evaluate your credit report

Before cancelling your account, it is important to check your credit report. You may just go ahead and register a dispute if you discover errors such payments that are recorded as late or payments that are reported to the incorrect account. The credit bureau will evaluate your complaint and react within 30 days.

Undertake the age of your credit card

Your credit score is heavily influenced by the age of your credit account. Your account's contribution to your score increases with age. A history of responsible borrowing shows that you are creditworthy, which translates into a higher credit score and the ability to choose from the best loan and credit card offers. Therefore, you should carefully consider the effects of closing a credit card you've had for a while.

Anlayze the effect on your CUR

Your Credit Utilization Ratio (CUR) will rise as a result of cancelling a credit card. Your credit score is harmed by a high CUR, which is the proportion of your available credit that you are using.

For instance, a total limit of Rs. 4 lakh is available if you have two cards with separate spending limitations of Rs. 2 lakh. A total of 1 lakh or 25% of your entire limit is spent each month if you use each card for 50,000. If you shut one card and charge Rs. 1 lakh on the single card your CUR will be increased to 50% from its optimal value of between 20% and 30%. So keep in mind to undertake this before cancelling your credit card.

Credit cards are now widely accessible, and many people have several from different institutions. People who have many credit cards can access a variety of advantages and a bigger aggregate spending limit. However, if one wants to cancel their credit card, they can do it online or by contacting customer service.

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First Published: 25 Sep 2022, 03:00 PM IST