Credit cards are great as backup tools for any expenses, such as unforeseen emergencies. Nonetheless, credit card users may want to close a credit card as they may want to prevent overspending. Another reason for card closure is when users have too many credit cards. While closing a credit card, users must note that the action of closure may affect the user’s CIBIL score and the CIBIL report adversely.
What is a CIBIL Score?
To know how the closure or cancellation of a credit card adversely affects your CIBIL score, you should know about the CIBIL score itself. A CIBIL score is a numerical value between 300-900, generated by TransUnion CIBIL, a credit reporting agency. It tells authorities about an individual’s credit profile. For instance, if you apply to a bank for a credit card, the minimum CIBIL score for credit card eligibility is 700. This is a good score and banks approve your credit card application without delay. A CIBIL score is essentially a summary of your credit history and your current financial creditworthiness. Hence, a CIBIL score is relevant to your financial background and you must maintain a high score.
CIBIL Score and Credit Cards
Your CIBIL score is accompanied by a credit report that has details of your financial history. Now that you know how important a CIBIL score can be, you may want to reconsider closing a credit card which you have managed to get approved for due to an adequate CIBIL score. Moreover, a credit card exhibits the amount of credit that a user can avail of. Closing or cancelling a credit card implies that a user is, in fact, reducing the amount of credit available to be spent. Financial analysts believe that users should have a credit blend in their financial portfolios which can aid in getting a higher CIBIL score. Keeping a credit card account alive tends to retain the good standing of the account because credit limits on the account may be high. This, in turn, implies that users are financially sound.
Tips to Close Credit Cards Without Harming CIBIL Scores
If you must cancel your credit card after having shown the minimum CIBIL score for credit card use, then there are ways to do so without harming your credit profile. Here are some tips:
- Make sure that all automatic payments attached to those credit cards being cancelled are discontinued.
- In case there are any reward points to be redeemed on credit cards, these must be redeemed before cancelling cards, showing a good utilization of credit.
- If there are any fees and charges that are pending on the credit card to be closed, these should be paid promptly and then the card closed. Pending payments show debt and these should not be forgotten as they reflect badly on your credit score.
When you utilize credit in a positive way, your credit score reflects this and improves. With credit card use, your credit score rises when you settle bills on time, showing your sound financial health. In case you close a credit card, make sure all you owe to a card issuer is settled before closure.