Closing a credit card? Check out how cancelling it will impact your financial portfolio

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Updated: June 16, 2018 7:17:50 PM

In a bid to prevent their misuse and to avoid hassles, you may want to close some of your credit cards. However, is that the right way to go?

credit card, credit card number, credit card payment, misuse of credit card, credit score, credit card closureIt’s not uncommon to have more than one credit cards, but how they are used creates all the difference when it comes to managing your financial portfolio.

Credit cards are an integral part of our financial portfolio and their healthy usage with timely repayment helps maintain a good credit history. It’s not uncommon to have more than one credit card, but how they are used creates all the difference when it comes to managing your financial portfolio. You may even feel you want to get rid of a credit card or cards to lighten your credit instruments. However, do you really need to cancel it? Or would it be better to just put it away and not use barring emergencies?

Let’s find out whether closing a credit card is the right way to go and how it impacts your financial portfolio:

How It Impacts Credit Score

Closing a credit card will impact your credit score, but it depends on some crucial factors like value of the credit limit, age of the credit card and credit ratio it holds in your overall credit card portfolio.

When you close a credit card, you will reduce your overall credit limit, which can lower your credit scores. The fall in score depends on how much of debt you carry on other credit cards. For instance, closing a credit card with a high credit balance may have a higher impact than closing a card with a lower limit.

Having an available line of credit on a card with no outstanding balance always helps your credit score as your credit utilization is kept in check.

Does Not Lower Debt

It’s a misconception that closing a credit card lowers debt. Outstanding debt on a credit card will have to be paid regardless if you want to close it or not. In fact, paying outstanding dues on credit card and not using it that often will help you keep debts at bay than just closing the card. If you do decide to close it, remember that your overall credit limit will decrease unless you get another card of the same or higher limit.

If You Must Close It

Having an overall high credit limit always helps, but there are some occasions when closing a credit card is called for:

# If you absolutely cannot control your spending needs and want to remove the temptation.

# If you are paying an annual fee for a card you do not use or if you have a card that charges an extraordinarily high interest rate or miscellaneous fees.

# If you get a better card whose rewards suit your needs, you can replace the limit with the new card.

Checklist Before Closing

Before applying for a closure of your card make sure to get some crucial things sorted:

# Pay Dues: You will have to pay dues, whether it’s for actual spends or interest accumulated over time. If you feel you have been charged unfairly you can approach a redressal forum to look into the matter and go for a settlement amount with the lender.

# Redeem Reward points: Do redeem any unused reward points on the card as some banks may not allow redemption after applying for cancellation. Some do provide an option to redeem the points in a specific period of time even after cancelling the card or if you get another card from the same bank may allow you to transfer it to that.

# Cancel Auto Debits: If you have placed any auto-debits from you card for any utility bills, don’t forget to cancel it as they will bounce once the card gets deactivated.

How to Close It

There are several ways of closing a credit card:

# Call customer care to notify closure

# Write an e-mail request

# Submit request online

# Visit any branch to give offline application

(The author is CEO at

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