Cancelling Your Credit Card? Not Before Reading This
Not in the mood for reading? Then in one word the answer is YES! Cancelling a card will affect your CIBIL Score. And not positively…
But to fully understand how credit scoring works, you need to know why:
- Your CIBIL score is a credit score, which determines your credit worthiness. The score is impacted by your credit history that includes your credit payment behavior, loan repayment behavior etc.The more timely you are, the better will be your CIBIL score. For a layman, your CIBIL score is calculated on the basis of credit available to you as against credit outstanding on you. So any action that relates to your credit card’s repayment or even cancellation is bound to affect your CIBIL Score.
- Cancelling a Credit card will reduce your CIBIL score. Simply because you are choosing to reduce the amount of credit available to you by cancelling a credit card! Even if you haven’t been using that particular card much, it still signifies that you have some amount of credit limit with you by owning that card. Cancellation eliminates that credit availability advantage; hence your CIBIL score may go down. Try not to lower your credit ceiling, always raise it!
- Before explaining any further, let us first understand why anyone would want to cancel a Credit Card. Most of the people have 2 or 3 credit cards but they end up using the one as preference. So they cancel the rest two because management of so many cards becomes a hassle! Higher rate of interest charged by some credit card is another reason why people choose to cancel it.
- Whatever be your reason, cancellation of card is not the smartest solution. You can make card management easy for you by understanding the benefit of each card and using them for specific purposes. For example, one bank’s credit card can get you more discounts while online shopping while other may be great to use for fueling or travel bookings! Rather than cancelling, the better option would be to stay aware of the individual benefits of the card.
- And finally, there is a smart way of cancelling the credit card. If you wish to cancel one credit card while retaining the other (which has better cash back or reward earning system), do that gradually. Do not cancel the lesser used card; rather take your time to increase the credit limit of your preferred card, the one you intend to keep. Once the credit limit of your main card has increased considerably, you may go ahead with cancelling the one you don’t want and the CIBIL score would not come down significantly.
And on a last note, make sure to know all the benefits and limitations of a credit card before applying. Owning a credit card just to cancel it on a later time is not a sensible line of action.