How to Close Your Credit Cards without Hurting Your CIBIL Score?
Are you unable to decide whether to close your credit cards? Then, you must also be worried about the negative effects of closing a credit card.
It is generally advised that you should not close your credit card account. Doing so may have an adverse effect on your credit score. Furthermore, closing credit cards can also increase your credit utilisation ratio, which would decrease your CIBIL score.
However, there are certain situations where closing your credit card may be necessary. It is also possible to safely close your credit cards without lowering your CIBIL score.
Continue scrolling to learn how to close your credit cards safely.
How to Close Your Credit Card Without Hurting Your Credit Score?
Follow these tips to close your credit card so that it has a very little negative effect on your credit score:
- Calculate the Impact on Your Credit Score
The first and foremost thing to do is to consider whether closing the credit card will deteriorate your credit scores adversely. Suppose you are closing the only credit card you possess and have never taken loans. In that case, the credit information bureau will no longer get information on your credit utilisation and credit repayment history. Thus, you will gradually lose your credit score.
On the other hand, if you have good repayment behaviour, keeping your account active retains its good standing. Also, cancelling or closing credit cards will not hide any irregular repayments from your credit history.
Another major factor to consider is that closing a card reduces your available credit and this can lead to an increase in your credit utilisation ratio. If this ratio does not increase too much when closing one of your credit cards, you can do so safely.
- Clear All Outstanding Dues
It is absolutely important to clear off your outstanding dues before closing off your card. It will be impossible for you to request the closure of the credit card account with the bank before clearing all remaining dues.
Thus, before deciding to close your credit card account, pay all your dues as well as any penalties that are due.
- Carefully Go through the Closure Policies
It is crucial for you to read all the policies of the bank regarding its credit card closure procedure. The closing procedure of every bank is different. Thus, read all policy-related documents carefully and check how you can close off your credit card account without having to pay extra charges or penalties.
- Call off Auto-Payments
Go to your bank’s website and cancel the auto-payment instruction for utility bills or other subscriptions. If you fail to do it, then the bank will continue to charge you on the closed card. Then, you will miss the payments and the utility service providers might levy a penalty for overdue payments.
- Redeem Your Rewards and Benefits
Most credit cards have much to offer regarding reward points, cashbacks and other benefits. These can be redeemed by cash or for travel, shopping and other services. After closing the credit card, all rewards and benefits that you had accumulated will be gone.
Thus, before you close off your credit card account, redeem all your rewards and benefits. You can also try to redeem them as a statement of credit which will substantially reduce your due amount payable.
- Inform Your Bank of the Cancellation
Contact your card service provider and request for cancellation of the credit card. You will have to confirm before that you have absolutely no due payments or penalties. Even if the customer care representative tries to offer you new rewards, you will have to pursue the request for the closure of your account.
- Follow-Up In Writing
You must keep a record of your request for closing the credit card in writing. Thus, follow up on your previous request with a written application for the closure of your account. This might be a very important document to keep for the future, in case of any negative repercussions on the credit report or CIBIL score.
- Check Your Credit Report
You should get a free copy of your credit report. This is necessary to check whether the credit card account has successfully been closed. It is extremely crucial because any mistakes or inconsistencies will remain in your credit report and credit repayment history for the next 7-10 years.
Pros of Cancelling a Credit Card
Here are some of the advantages of cancelling your card:
- Prevents Over Expenditure
Often having easy access to a credit source like a credit card leads to unnecessary expenditure. As a result, you get into a vicious cycle of debt which you often may be unable to repay. The accumulation of debt may lead to bankruptcy.
Thus, if you want to play it safe, then the best thing for you would be to close your credit card.
- Reduces Your Overall Debt
Having multiple credit cards increases your total debt, which in turn leads to an increased debt-to-income ratio (DTI). The higher your DTI, the more difficult it will be to get a loan from any bank or non-banking financial company.
- Reduces the Chances of Identity Theft
In this age of technology, having multiple credit cards also increases your risk of getting hacked. Through your credit card, hackers can steal all your sensitive card information and use it for fraudulent activities. Thus, having fewer credit cards reduces your chances of becoming prey to fraud.
- Retains the Payment History
The best thing is that even when you close your credit card, your payment history would not be erased from the credit reports. Thus, if you had good repayment behaviour, it will be beneficial for your credit score and will remain on your credit report for up to 10 years.
Cons of Cancelling a Credit Card
There are also several problems associated with closing a credit card. Some of them are given here:
- Increases Credit Utilisation Ratio
The credit utilisation ratio is calculated by determining how much available credit you currently utilise amongst the total available credit across different cards. When you close a credit card, the total credit amount is reduced. This results in a higher credit utilisation ratio. A high credit utilisation ratio makes it harder to avail loans or new credit cards.
- Shortens Your Credit History
The length of your account history plays a pivotal role in establishing your credit repayment behaviour and thus, your creditworthiness. If you have a good repayment track record, having a short record of such behaviour would not be of much help. That is why it is advised not to cancel your older cards, as it can adversely affect your CIBIL score.
- Impacts Credit Score
Closing a card often affects your credit score. Since closing a credit card account increases the credit utilisation ratio due to the reduction of the total available credit limit, it often has a negative effect on the credit score in the short term.
- Reduces Available Credit Limit
As soon as you close a card, the overall credit limit available to you will be substantially reduced. Furthermore, you will also lose out on the rewards and other benefits that your credit card provides.
You might choose to discontinue a credit card for different reasons. However, you must always weigh the pros and cons associated with your decision and act accordingly. If you have decided to close a card, keep in mind the above pointers to minimise its effects on your credit score.
Frequently Asked Questions
Can I remove negative information from my credit report?
No, you cannot remove any genuine negative information from your credit report. These generally remain on your credit report for around 7 years. The information cannot be changed because based on this information lenders analyse your repayment behaviours.
Can I get a credit card with a CIBIL score of less than 750?
Yes, you can get a credit card with a CIBIL score of less than 750. There are several banks and NBFCs which offer cards to applicants with a CIBIL score of 650 and above. However, you must keep in mind that in such cases, you may not get the best deals and offers.
What are credit information bureaus and their roles?
Credit information bureaus are agencies which collect information about the borrowing and repayment habits of individuals as well as their records of bill payments and pending bills. These agencies share this information with financial institutions looking to assess an individual’s credit statement for lending and card-issuing purposes.
Can I reopen a closed credit card account?
It may be possible to reopen a closed credit card account. However, this totally depends on the policies of your card issuer as well as other factors like why and how long ago your account was closed.
What should I do to fix an error in my credit report?
If you discover an error in your credit report, immediately contact the credit bureau from which you have obtained it and request a correction of said mistake. Credit bureaus like TransUnion, Equifax and Experian have their specific instructions on how you can request for correction of such inconsistencies via online mode or by phone.