Do you feel that you have too many credit cards? Are some of them lying idle with you? The correct step is to close these credit cards, but closing credit cards impact your credit score.
It impacts the “credit utilization” ratio i.e. credit used against the available limit. Credit utilization ratio is one of the factors based on which credit scores are calculated. Before closing that credit card understand if it is the correct move for you. Consider the following-
If you are a spendthrift and end up making purchases which are beyond your servicing capacity, then you should close your credit card. Although this is not the best solution to the problem, it definitely will ensure that you do not fall into a debt trap. It also reduces your options of shopping around randomly without having a genuine need.
- High fees
If your credit card has high annual fees, then you should repay your balance and close your credit card. Credit card issuing companies do offer credit cards with “zero” annual fees for the initial 1-2 years. These are steps to lure you to buy the credit card. But if you feel that the annual fee charges are high and unfair, then you should do away with the card.
- Repayment issues
If you have been only repaying the minimum amount due on your credit cards or frequently end up making late payments against your credit card then, may be time has come to close your credit card
- Balance transfer
If you have opted for a balance transfer, then it might be a good move to close that high interest credit card. The fact that you have opted for a balance transfer indicates your inability to service that card.
High fees, high interest rate, zero loyalty program or strain in repaying monthly dues….do you associate to any of these? Time to close that card then!