Credit cards, whether it is an HDFC credit card or SBI credit cards, are financial instruments that form a consequential part of your financial portfolio, and their healthy use helps maintain a good credit profile. However, owing to various reasons, such as difficulty in managing multiple credit cards, an increase in annual fee or interest rate, availability of better credit cards etc., may enable you to take the decision to close your credit card. This involves following a formal closure procedure. Here is how you must go about it.
Exhaust your rewards
Closing the credit card account takes away all the facilities that were once provided to you. Therefore, before you close your credit card account, check your reward balance and use it. Also, keep in mind some credit cards allow you to utilise rewards to pay off your outstanding bill. For instance, suppose your hold anHDFC Infinia credit card, so before closing this card, you must ensure you use all the reward points that you earned on this. Doing so would help you to make the most out of the card before closing it.
Pay off your outstanding dues.
For termination or revocation of the credit card, you need to inform the issuer of your decision to close the card. On notifying the issuer, the entire outstanding amount on the credit card becomes due. The outstanding involves the amount due to the issuer under the agreement, which includes other transactions and amounts not yet charged to your credit card account. Revocation of the credit card is effective only when the issuer receives full payment of the outstanding amount.
Make a written closure request.
To close your credit card account completely, you need to submit a written request to the issuer. Along with the written request, you also need to submit the credit card and add-on cards. The credit card and add-on cards must be cut into pieces through the magnetic stripe at the time of submission.
Avail a written confirmation from your credit card issuer
Termination of the credit card is effective after the receipt of the cut credit card and the final payment of the outstanding dues is received by you. No joining, annual or renewal fees are refunded on a pro-rata basis.
Check to confirm that your credit card account is closed.
Within a few months, you must check your credit report to confirm that your credit card account is reported as closed. Your credit report consists of details of all your credit accounts held currently or in the recent past. You can check your credit report for free via online platforms. Also, you can avail of a free credit report from any of the 4 credit bureaus, namely CIBIL, Experian, Equifax and CRIF High Mark. In case a credit card is not reported as closed on your credit report, then you can report it to the credit bureaus for correction via call, email, or post.
Is it better for you to close your unused credit cards?
In case you have not utilised one of your credit cards over a long time period, you may be considering closing it. Many of the experts advise keeping the unused cards open as closing them might negatively impact your score. Your score consists of 5 components – credit utilisation, new credit, credit history duration, outstanding dues and mix of credit. Note that your unused credit card has an impact on your credit utilisation and credit history length.
In case you have had a credit card for nearly 2 to 3 years, closing this card may not be a good idea. Closing the credit card may create a negative impact on your credit score. An unused credit card usually retains a considerable credit card limit locked in, which enhances your CUR (credit utilisation ratio) and, thus, your score. Here are some of the circumstances when you must consider closing your unused credit card –
∙ In case the card does not offer any benefits
∙ When you have a considerable number of credit card linked accounts
∙ When the annual charge of the credit card is very high
Major things to factor in when closing your credit card –
As mentioned previously, there’s no standard process to cancel your credit card. However, when you are looking to cancel your card, the correct way of doing so is to ensure that specific things are followed. Consider adopting the below-listed things to lower the damage that the closure of your credit card may bring to your credit score.
∙ Clear the outstanding card balance – Before zeroing in on the decision to close your credit card, you must ensure to clear your outstanding card balance. Without doing so, you cannot raise any request to cancel the credit card.
∙ Read regarding the closing process and possible penalties that you might require paying – Read regarding the closing process that credit card issuers may provide when it is about cancelling your credit card. Doing so makes you thoroughly aware of things that you may not have known, like penalties.
∙ Use all the outstanding rewards on your credit card that you are about to close – When you use a card to buy things, you basically end up earning good reward points. Such reward points must be used before closing your credit card.
∙ Ensure to cancel automatic bill repayments and transfers – Automatic bill repayments and transfers must be cancelled before you close the credit card. In case you fail to remember this, you may end up paying the charge associated with your credit card if the bank fails to follow up on the cancellation request.
∙ Ensure no last-minute fees pop up before you cancel the credit card – Check your last credit card statement properly to ensure there are no last-minute fees. Pay all the fees before you decide to close the card.
∙ Speak with your customer care support to know by when your card will be cancelled – When you raise any request for cancelling your card, ensure to speak with the issuer for a follow-up to know the date by when you can expect the closure of the card. In this way, you do not require paying any additional charges and fees.
∙ Ask your issuer to provide you with a written confirmation from the issuer mentioning your card was closed – It is crucial because, as stated before, it assists you in keeping tabs regarding when your credit card was closed. So, make sure to get a written confirmation from the issuer.
The major decision of credit card closure must be taken mindfully. Closing your credit card generally has a bad impact on your credit profile. Post-closing your card, your credit card limit falls drops, and as a result, your CUR (credit utilisation ratio) increases. A higher CUR reduces your score. The solution to this is to request for credit card limit increment on another credit card or place an application for a new card.