Here’s How Credit Card Closure May Impact Your Credit Score

Credit card closure may impact your credit score, depending on various factors. This includes your credit use, holding period, remaining dues, and past payment history. As per recent news reports, nearly 33% of digital domestic transactions in 2024 were made using credit cards. This makes it important for you to understand the financial repercussions of credit card closure on your credit score. 

When to Think About Credit Card Closure

Deciding to cancel a credit card needs thought. Here are some important points to consider based on your financial situation: 

1. High Yearly Fees: You should perform a cost-benefit analysis on your premium cards that charge you big yearly fees. Ask yourself: Are the benefits worth the cost? If not, it may be wise to close the card. 
2. Avoid Debt Trap: If a card makes you spend too much and get into debt, closing it can help you control your finances again. 
3. Managing Multiple Cards: Using too many cards can be confusing. They can also increase the chance of financial problems. This includes fraud, debt, and stress about payments. Therefore, you should close credit cards you don’t need.
4. Life Changing Events: Events like divorce might mean closing shared cards. This important because unpaid credit card bills can quickly become a big problem. In such cases, credit card closure can simplify your finances. 

How to Lower the Impact on Your Credit Score

To reduce the effect of closing a credit card on your credit score, keep these points in mind:

Clear Off Remaining Dues

Make sure you pay all your dues before you cancel. This avoids extra charges and interest.

Redistribute Credit Utilisation

Move the credit limit from the closed card to another active card. This helps keep your credit use at a healthy level.

Avoid Closing Multiple Cards at Short Notice

Closing many cards at once can hurt your credit use and the age of your accounts. Close cards slowly, with time in between.

Try to Keep Older Cards Active

If somebody closes an old credit card with a high limit, their credit score might drop. Keeping old cards with a long history is good for your credit record. It can even improve your score. 

Carefully Monitor Your Credit Report

After closing a card, check your credit report. Make sure the closure is correct and look for any mistakes.

Remember to Redeem Reward Points 

Use any points or benefits you’ve earned on the card before you close it. This way, you get the most from your card’s history.

Conclusion

Cancelling a credit card requires a thoughtful approach. It’s not a decision to be taken lightly, as it can have repercussions on your financial health, particularly your credit score. By thinking about these things, you can decide about cancelling credit cards wisely. This will help you avoid hurting your credit score.

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