It’s okay to feel that you don’t need your existing credit card. It could be for any reason, including that you want to reduce your dependency on credit cards or wish to find another card suitable to your needs. Whatever your reason, it’s necessary to understand how to cancel your current card and what effects it has on your credit score. The more information you gather, the lower the chances of harming oneself.
Effect of Credit Card Cancellation on Your Credit
While canceling a card might seem like a good step in your life, it can have a significant impact on your credit score. Credit card cancellation effects:
Credit history
Your credit history shows the average age of your previous credit accounts. In other words, lenders see your credit history to understand your habits and punctuality for paying back loans. If someone delays repaying loans, their credit remains open for a lengthier period, harming their credit history.
For calculating credit score, a person’s credit history has a 15% weightage, but the value can vary according to the lender and credit scoring model. So, if you tend to cancel a credit card, you reduce the age of your credit accounts, which isn’t good for an individual’s credit score.
Debt-to-credit ratio
Another point affecting your credit score is the debt-to-credit ratio. It is the amount of credit limit present in your account to the amount you have spent. To find the ratio, lenders divide all existing credit balances by the total card limit.
Usually, this ratio has a 30% weightage in credit score calculation. So, it has a greater impact than credit history. Most lenders even see the debt-to-credit ratio to decide if they should approve a borrower’s loan request.
The cancellation of a single credit card could affect the deb-to-credit ratio percentage. For example, the ratio increases if you wish to close one credit card from the three credit cards you own.
How to Minimize the Impact of Credit Card Cancellation?
Often, canceling a card becomes a necessity. If something similar happens to you, always cancel the cards that have been with you for the shortest time. It is better to hold onto cards, used for a greater time as they help maintain a history.
In addition to holding onto older cards, minimize your usage. Higher credit utilization worsens your credit scores. So, beware of your credit usage. If the annual fee of your card bothers you, try asking your bank for cheaper options or cards with zero charges.
Of course, your cancellation request gets approved only when you pay all your dues. If you ask your lender to cancel a card without clearing previous debt, this would greatly affect your position.
How to Cancel a Credit Card?
The cancellation process is straightforward. The steps comprise the following:
· Pay off all remaining balances and Dues: Before canceling a card, it is better to check for any outstanding dues. If you have pending loans, this is the time to clear them. Without a zero credit card balance, banks will not close your card.
· Cancel subscriptions or pre-authorized payments: You might have been paying for various subscriptions. Therefore, before closing your card, make sure to cancel them all. Any subscriptions still linked with your card might continue to cost you.
· Use credit card points: Most credit companies give customers points or rewards. Make sure to use all your reward points otherwise, they will be wasted upon canceling your card.
· Cancel card: Once you have canceled all subscriptions and used every last reward point, call your bank and formally cancel your credit card. Some firms allow people to cancel cars through their websites or apps.
· Confirm about cancellation: Following the cancellation of your card, it is necessary to get a written confirmation from the bank. There can be certain glitches in the system, which could create confusion. To be on the safe side, get a written confirmation or ask your bank to email the document to you.
· Check card report for surety: If your cancelation is complete and it’s been a month since you canceled your card, check your credit report for any discrepancies.
Benefits of Cancelling a Credit Card
Where canceling a credit card might impact your credit score, there are several benefits of it as well. For example, if you have a habit of overspending on your credit cards, canceling a few cards will help you cut some expenses. Moreover, keeping track of multiple cards and credit histories can be challenging. If you have one or two cards, you can easily keep a check on your credit score and keep your debt within the limit.
Having too many cards is not beneficial for any individual. You might end up using them all at once and exceeding your limit. It will add to the existing debt in your life and make matters complicated. So, the fewer the cards, the greater the benefits. However, in the process of becoming debt-free or canceling your credit cards, you end up harming yourself.
People unintentionally close cards that have been with them for a longer time, badly affecting their credit history. Similarly, wasting away reward points is also a mistake committed by most individuals. When you plan to close a credit card, thoroughly check how much balance is to be paid and if are there any substantial reward points in it. You wouldn’t want to end up financially harming yourself while freeing yourself of debts.
Instead of falling for the vicious trap of credit cards, choose flexible options. At BHM Financial Group, we offer loans for people with no credit history. Your score won’t matter to anyone here. The best part, you could get short-term and long-term loans at easy installment plans. Unlike credit cards, we don’t charge higher interest rates and offer flexible repayment schedules.
No matter how good or bad your experience with a credit card might have been, we won’t disappoint you. Unlike traditional banks, we don’t keep you waiting. Our lending mechanism allows you to get the loan amount in less than 24 hours. Apply for a loan online through our website and ease your financial pressures. You could even pay your existing credit card bills with the borrowed money.