Closing a Credit Card: Will it Impact Your Credit Score? Here’s What Experts Say

Impact of Credit Card Cancellation on Credit Score

Closing a credit card is an important financial decision that can potentially have a negative impact on your credit score. However, there are situations where deactivating a credit card becomes necessary. In such cases, experts recommend following certain tips to minimize the impact on your credit score. Let’s explore these suggestions in detail.

Many people worry about the effect of closing a credit card on their credit score. When a credit card is deactivated, your total available credit limit reduces. As a result, your credit utilization ratio increases — one of the key factors that affect your credit score. Moreover, closing a card that has been active for a long time can shorten your credit history, which again negatively impacts your credit score.

To make informed decisions in such situations, credit score simulators can be helpful. These tools help you understand how your financial actions might influence your credit score.

According to experts, it’s best not to close a credit card if it doesn’t carry any annual fees. On the other hand, if the annual charges outweigh the benefits, or if you’re forced to pay high interest charges, then closing the card may make sense. Similarly, if there are security concerns, deactivating the card is the safest option.

If you decide to close a credit card, certain precautions should be taken:

First, pay off all outstanding dues on the card.

Make sure to clear any pending late fees. This helps reduce any potential damage to your credit score.

Do not make any new transactions on the card you plan to close.

If you have reward points, redeem them before closing.

Cancel any auto-payments or subscriptions linked to the card.

Finally, submit a written request to the bank for card deactivation. After submission, it may take about four to six weeks for the card to be fully deactivated.

By following these steps, you can protect your credit score even when closing a credit card becomes necessary.