Cancelling a credit card is a significant financial decision that can impact your credit score. While experts generally advise against closing a credit card, there are valid reasons to do so, such as high annual fees or steep interest rates. If you’re considering deactivating your credit card, it’s important to weigh the pros and cons before making a final decision.
How closing a credit card affects your credit score One of the biggest concerns when cancelling a credit card is the impact on your credit score. Closing an account reduces your overall credit limit, which can increase your credit utilisation ratio — an essential factor in determining your credit score. Additionally, if the card you are closing is your oldest account, it may shorten your credit history, which could negatively impact your score.
If you’re unsure how closing a credit card might affect you, consider using a credit score simulator. This tool helps predict how different financial actions — such as closing a credit card or paying off debt — could influence your score.
When should you consider cancelling a credit card?
If your credit card has no annual fee, it’s usually best to keep it open, even if you don’t use it regularly. However, here are some situations where cancelling your card might be a good idea:
High annual fees: If your card’s annual fee outweighs the benefits, consider switching to a no-fee alternative. Excessive interest rates: If you’re carrying a balance on a high-interest card, consolidating debt or switching to a lower-interest option might be better. Security concerns: If your card has been compromised multiple times, you may prefer to close the account.
How to properly close your credit card
If you decide to cancel your credit card, follow these steps to minimise any negative impact: Clear outstanding dues: Pay off any pending balances, including EMIs, to avoid late fees and credit score damage. Stop using the card: Avoid making new transactions to prevent additional statements or charges. Redeem rewards: Use your accumulated reward points before closing the card, as they will be lost upon deactivation. Cancel auto-payments: Remove your card details from any automatic bill payment services to prevent missed payments. Closing a credit card requires careful consideration, but by following these steps, you can do it without harming your credit score.
How to deactivate the credit card
Once you have ensured that there are no outstanding dues, contact your issuer to formally request the closure and obtain a written confirmation.
Steps may vary between different credit card issuers. For instance, HDFC Bank requires a written letter from the cardholder to close a credit card. Axis Bank credit card can be closed by logging into your netbanking account, while for SBI it requires calling SBI credit card customer care number or emailing them or sending a request by post.
ICICI Bank enables you to cancel credit cards by contacting the customer service portal or by writing to them.
Once the above mentioned steps are followed, it would take a minimum of four to six weeks for the changes regarding your deactivated credit card to appear in your credit report.
As a measure of precaution, it is advised to cut the credit card into two pieces after its cancellation.