Cancelling Credit Cards Not Always Best For CIBIL
We are in a constant urge to simplify our life. We want to get rid of extra burden and extra mess. As people say reducing the extras will help us leading a satisfied and simple life. But this may not hold true for cancelling of credit cards. Precaution is always better than cure. Rather than getting struck in confusion as whether to cancel those extra cards to simplify the mess or to hold it back, it is better we decide about this before applying for credit card itself. Let me tell you before proceeding that cancelling your credit card undoubtedly harms your CIBIL score.
The reason why people go for cancelling credit cards is because they either want to reduce their financial mess, or because they already have more cards than wanted. It is also done as a measure of self control by most people, as they are willing to control their over spending and thus have a hold on their expenses.
Now coming to the topic, cancelling cards would harm CIBIL score. Wondering how?
- Impact on age of credit transactions: Because while cancelling credit cards it will have impact on your age of credit transactions. Especially if you are closing a card that has long credit history then it would significantly reduce your credit score. Thus as overall age is affected; things turn out to be worse.
- Impact on credit utilization: A higher credit utilization ratio would have a negative effect on your CIBIL score. Let’s assume you have two cards and have Rs 10000 as balance out of Rs20000. Thus the credit utilization is Rs 5000 that is 25% But closing your card would increase the credit utilization rate above to 50%.Not a good move,
- Affects your payment history: You might be having a good payment history in one of your cards. Closing that card means, you will no longer be able to get the benefit of those payment transactions in our average payment history. Thus closing a credit card having vast payment history would prove to be curse than benefit.
- Canceling only card: Credit cards add to 10% of your CIBIL score and thus cancelling that only card you are having would not just affect your credit score up to that 10% but also leave you with less diverse options to rely upon, in case of emergencies. Many don’t at all recommend closing only the credit card as it would be detriment to you.
Thus, on an ending note, I would like to say that if you want to close a credit card, then choose the one having very little history and which you have used the least. However keeping those extra cards in your pockets, instead of closing them and putting some restrictions to yourself on your spending is most recommended rather than closing your many credit cards.
Keeping at least one credit card is essential for further transactions. But if you are having problems with one of your credit cards, always go for closing the credit card. However, revise before closing.