Credit cards have become very common these days and are used by many people as a convenient way of making payments. As we all know, this is plastic money which allows you spend now and pay later. A credit card helps convert the high-value purchases to affordable EMIs. It also offers various other advantages like interest-free credit, rewards, discounts and much more.
As credit card offers all these conveniences, many people have multiple credit cards from different banks. Having multiple credit cards allows access to a wide range of benefits with an increased spending limit.
But, having multiple credit cards can cause problems as they are tough to handle. You might find it tough to keep track of billing cycle, credit limit, and payment due date of each credit card. So, many people choose to close some credit cards and keep some frequently used ones active. In this blog, we will discuss things you should never forget before closing your credit card.
See Also: How to use a credit card in the right way?
When you close multiple credit cards; your credit utilization ratio would increase. The credit utilization ratio is the percentage of available credit you are spending. If your credit limit is Rs 1,00,000 and you have spent Rs 20,000; your credit utilization ratio would be 20%. A high credit utilization ratio impacts credit score.
In case you have two credit cards with credit limit of Rs 50,000 each; then your total credit limit is Rs 1 Lakh. If you spend Rs 20,000 a month on each card, you are spending Rs 40,000 out of Rs 100,000 or 40% of the credit limit. In case you close any of the cards and spend Rs 40,000 a month; your credit utilization ratio increases. So, you must consider this before closing your credit card.
With the intention of making people use their credit cards; more and more credit card companies offer reward points. You can redeem these reward points for cashbacks, discounts, coupons, products or services through your bank’s marketing partners. Before closing your credit card, you must redeem all your pending reward points on the card.
You must pay all dues on the credit card before closing them. You won't be able to close your credit cards if there are any pending dues. Outstanding amount on your credit card attracts interest and late payment penalties. This can have a bad impact on your credit score.
Standing instructions instruct the bank make regular payments from your credit card account. These payments can be for EMIs, online subscriptions, utility bill payments and so on. So, if you are planning to close your credit card, you must cancel all such instructions. It is advisable to wait for a month to ensure they are canceled.
See Also: Guidelines for Credit Card Users
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