Credit Card Closure: Credit cards are now a regular part of our lives. They let us spend on credit, as long as we pay the dues on time.
But if you’re thinking about closing a credit card, take a moment to reconsider. Closing it can sometimes hurt you financially.
Let’s understand when it makes sense to close a credit card and what you need to keep in mind.
Is closing a credit card good or bad?
Financial experts say that closing a credit card isn’t always a bad move, but it should be done with care.
If you shut down an old card with a high credit limit, your credit score might drop. That’s because it shortens your credit history and raises your credit utilization ratio.
These days, people are being more careful with spending. Compared to last year, credit card debt has grown at a slower pace, and spending has also come down a bit.
This is being seen as a positive trend.
When should you close a credit card?
If your card charges a high annual fee and doesn’t give enough value in return.
If you tend to overspend with that card and keep building up debt.
If you have too many cards and find them hard to manage.
If there’s been a major life change, like a divorce or separation, and it’s a joint card.
How to reduce the impact on your credit score
Make sure to pay off all dues on the card before closing it.
If possible, move the credit limit to another active card.
Don’t close multiple cards at the same time, or your credit score may take a hit.
Try to keep old cards open, as a longer credit history improves your credit profile.
After closing a card, check your credit report to make sure everything is updated correctly.
Don’t forget to redeem any reward points before closing the card.
Things to keep in mind before closing a credit card
Closing a credit card isn’t a small step. If done correctly and at the right time, it can help you manage your finances better.
But a rushed or careless decision can hurt your credit score and affect your chances of getting a loan in the future.
So, it’s a good idea to talk to a financial expert before making a final decision, to be sure you’re doing the right thing.
