The CIBIL™ score is a number between 300 to 900 that indicates your creditworthiness. If the line of credit available is greater than the total outstanding loan amount, then your CIBIL™ score will be higher. A good CIBIL™ score is important for getting loans and credit cards without any hassles. But, certain financial activities hurt your CIBIL™ score. One of them is closing your credit card. Let us now look into how canceling your credit card will impact your CIBIL™ score and how you can close your credit card without hurting your CIBIL™ score .
How Does Cancellation of Your Credit Card Impact Your CIBIL™ score?
If you cancel your credit card, it will create a negative impact on your CIBIL™ score. This is due to the following reasons:
- When you close one credit card, you are reducing the amount of money available for spending.
- When you have a good repayment history for a credit card and close it, it will impact your CIBIL™ score negatively since you have removed an account that had good standing.
- When you have just used one credit card and close it, then the credit mix will not be there on your credit report, which is an important factor in CIBIL™ score calculation.
- When you close a credit card, you are losing the credit limit available on that card and hence the CUR becomes higher. This will affect your CIBIL™ score negatively. For example: if you have 2 credit cards and the credit limit on each of them is 20,000. Then the total credit limit available is Rs. 40,000. If you have swiped a credit card for 10,000. Then the CUR is 25%, which is considered a good number. But, if you close a credit card, then the available credit limit is only Rs. 20,000. Then the CUR surges to 50%, which is not considered a good number.
Close Credit Cards
How To Close Your Credit Card Without Impacting Your CIBIL™ Score?
Here are some ways in which you can close your credit card without a negative effect on your CIBIL™ score.
- Close The Newest Card First: Closing the newest credit card first and then going for the old ones is a smart move. For instance, you would have made timely repayments with an old credit card and this would have given you positive CIBIL™ score
history. Closing this credit card will erase the positive CIBIL™ score history.
Close Credit Cards
- Check the CUR and Request banks to hike the limit on the remaining cards
Suppose you have 2 credit cards with a credit limit on each being 50,000. Then the total credit limit is 1,00000. Now, if you swipe one credit card for Rs. 20,000, then, the CUR is 20% (which is considered a good number). If you close one credit card, then the available credit limit
is 50,000. Now, if you are swiping a credit card for Rs. 20,000, then the CUR becomes 40%, which is not a good number. The ideal CUR should be between 20 to 30%. This can be corrected by requesting the bank to increase the credit limit on the existing card or spending less on the existing card.
- Close cards after making complete payments: Close additional cards after making all the payments. Discontinue all auto payments. Ensure to pay any fee that you owe the credit card company like membership fees, bounce fees, or late fees, which will be a very minor amount but if left unpaid will hurt your CIBIL™ score. Check for all the hidden costs that you owe to the credit card company. It may take 7 years for any late payments of credit card accounts to get removed from your credit report, whereas a good credit history will remain on your credit report for a longer time. A closed account that was in good standing will stay on the credit report for 10 years.
- Redeem benefits: Credit cards come with multiple rewards on travel, shopping, restaurants, and more. When you close your credit card, you are closing the rewards you have earned. Check to see if you can redeem any of your rewards so that the outstanding balance is decreased. This may prevent your CIBIL™ score from getting impacted negatively. If you have already paid off the balance, then redeem your rewards before closing the account and enjoy other benefits because you have been consistent with your credit behavior.
- Transfer balance to another card: In order to maintain a good CIBIL TM
score, you can transfer the balance on one credit card to another and obtain lower interest rates.
- Check the timing of closing the card: It is important to close the credit card at the appropriate time. Closure at a time when there is no outstanding debt is good. Closing a credit card when you have a lot of other credit card debts will increase the CUR as the credit limit decreases. So, it is advisable to cancel the card when there is minimum outstanding debt as it will not have much impact on the credit score.
Contact your bank to inform: After you close your credit card, contact the bank to inform. Make sure the bank has registered your cancellation request. Otherwise, you will end up paying the annual fees for the credit card. You cannot expect your credit card account to close just by destroying old credit cards.
Check credit report to ensure: Check with any of the 4 RBI licensed credit bureaus to ensure that the credit card account is canceled and reported as closed. It may take 4 to 6 weeks for changes to appear on your credit report. Although it may not affect your credit score if the information does not appear on your credit report, it may lead to some future disparities.
Conclusion
Closing a credit card without hurting your CIBIL™ score is not difficult. It can be achieved if closure is done wisely and with caution. If you take the steps specified above, you may prevent the negative impact on your CIBIL™ score
