Close a credit card? Discover the impact of its cancellation on your financial portfolio

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

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

How does it affect credit score

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

When you close a credit card, you lower your overall credit limit, which can lower your credit rating. The drop in score depends on the amount of debt you carry on other credit cards. For example, closing a credit card with a high credit balance may have a greater impact than closing a card with a lower limit.

Having an available line of credit on a card with no outstanding balance still helps your credit score because your credit usage is monitored.

Do not reduce the debt

It is a misconception that closing a credit card reduces debt. The outstanding debt on a credit card will need to be paid whether you want to close it or not. In fact, paying the unpaid dues with a credit card and not using it often will help you avoid debt rather than just closing the card. If you decide to close it, keep in mind that your overall credit limit will go down unless you get another card of the same or higher limit.

If you need to close it

Having a high overall credit limit always helps, but there are times when closing a credit card is necessary:

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

# If you pay an annual fee for a card you don’t use or have a card that charges an extraordinarily high interest rate or miscellaneous fees.

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

Checklist before closing

Before asking for your card to be closed, be sure to sort out some crucial things:

# Pay the contributions: You will have to pay contributions, whether they are actual expenses or interest accrued over time. If you believe you have been billed unfairly, you can go to a repair forum to look into the issue and request a settlement amount with the lender.

# Redeem reward points: Redeem any unused reward points on the card, as some banks may not allow redemption after a cancellation request. Some offer an option to redeem the points within a specific period of time even after canceling the card or if you get another card from the same bank, it may allow you to transfer it to this one.

# Cancel direct debits: If you’ve made automatic debits to your card for utility bills, remember to cancel it as they will bounce back after the card is deactivated.

How to close it

There are several ways to close a credit card:

# Call customer service to notify the closure

# Write a request by e-mail

# Submit the request online

# Visit any branch to donate offline application

(The author is CEO of Bankbazaar.com)