Credit cards give many advantages. However, customers generally want to close them to decrease overspending. These days acquiring credit cards has turn out to be so simple for earning men and women that they finish up obtaining many cards in their wallets. But it becomes a month-to-month hassle to retain track of all credit card bills. In this case, also, customers want to get rid of many cards. However, just before closing a credit card, there are particular issues that need to have to be kept in thoughts.
1. Pay Off Your Balance in Full
Before you finish up closing your credit card, it is incredibly vital to clear all dues and pending payments as these pending payments will attract interest and late penalty charges, according to Gaurav Chopra Founder & CEO of IndiaLends.
This will be a clean break in between you and your credit card business. Moreover, this will also defend your credit score. If you are unable to spend off your dues due to liquidity troubles, you can transfer your credit balance to a new credit card by initiating a transfer course of action with the assistance of your bank.
2. Ensure that there are no standing guidelines on the card
You may possibly have a Netflix subscription, or you may possibly be paying your EMIs and utility bills from the card. It is advisable to quit these payments just before closing the card.
“These payments do not stop automatically because once you initiate the process of closing, it does not happen instantly. Until you get the no-dues certificate or written confirmation, you can’t be sure that the card has been properly closed. The bill will continue to build and if you miss the payments due to being unaware, your credit score may dip and you will also be charged with penalty charges if the money is not paid within the due date. Hence it is best to cancel all auto-payments beforehand to avoid falling into trouble at a later stage,” Chopra told FE Online.
3. Credit card’s age matters
If you have many cards, it is improved to close the newer cards initially.
While closing your credit card, think about the age of the card given that the age of your credit account has a key effect in the computation of your credit score.
“The older your credit card, the higher is its contribution to your credit score. Having an old credit line indicates that you have been a responsible borrower and therefore creditworthy thus being eligible for the best loan and credit card offers,” mentioned Chopra.
Thus, just before closing an old credit card, you need to think about the repercussions it will have on your credit score.
4. Avoid closing if arranging for a huge loan
Usage of your credit card reveals that you have been a accountable borrower all through that period as a result contributing to your credit score.
According to Chopra, closing your credit card reduces your credit score. The older the card, the more is the contribution to your score and the bigger is the drop. A low score signifies a higher interest price on your loans. If you need to have to take an education loan or home loan, this can be incredibly pricey. Hence it is advisable to stay clear of closing your cards if you have are arranging to take a loan quickly.
5. Redeem all advantages just before closing your card
Credit card gives reward points that can be redeemed for money back, discounts, coupons and so forth. Many instances, individuals do not retain a tab on their reward points. So just before closing your credit card, make sure to redeem all your current points and only then apply for cancellation.
You can redeem your points by going to the reward catalogue and decide on any of the obtainable solutions to redeem your points.