The advantages and disadvantages of having a credit card highly depend on your spending habit and lifestyle. If the card doesn’t have features that you think would help a lot, it usually remains unused for months. Canceling your card is a choice. However, this is a decision you do not do on impulse.
Before choosing to close your credit card account, here are a few questions you should ask yourself:
1. Do I have outstanding balances?
You can close your credit card account immediately if you already paid off all your outstanding balances. Your available credit limit should be 100% before cancellation. If you paid within the current billing cycle, you need to wait for the next billing statement to see your payment posted.
2. Is the credit limit too low?
The card might not be often used but having a high credit limit can help improve your credit utilization ratio (CUR). Low CUR can lead to a higher credit score. It would be a bit smarter if you cancel the credit card with the lowest limit. Credit cards with upper limits can help you maximize your purchasing power and can lower your utilization rate.
3. When did I activate the credit card?
Since almost all credit cards in the Philippines come with waived annual fees for the first year, you might want to think twice before closing the cards that are active for less than 12 months. Credit history is one of the factors when computing your credit score. The longer you use the credit card, the better the impression you will have from the bureaus. Its almost always advisable not to cancel your first credit card. However, if the length of use does not compensate for the perks, then you might as well call for cancellation.
4. Am I paying for annual fees?
Many credit cardholders would not want to pay annual fees. What they do is call the bank and request an annual fee waiver. If the bank refuses and asks you to pay off instead, then you can consider closing the credit card. Other credit cards are offered with a free annual fee for life. Just keep your credit profile in good shape, and you’ll get approved for these cards that will waive your costs as long as you use them.
5. How many active credit cards do I have?
Make a list of all your credit cards and enumerate the advantages and disadvantages of each. You can rate the credit cards based on credit limit, fees, and charges, ease of payment, customer service and security. If a credit card does not feature less than two of the factors mentioned, then it might be worth the cancellation.
6. Do I have enrolled billers on the credit card?
Cancellation of the credit card with enrolled billers can take a toll on your payment strategy. Make sure you already transferred your billers to another card before the cancellation. If this was not possible, opt for other payment options so as not to leave your bills unsettled upon account closure.
7. Are there more disadvantages than the advantages of using the card?
Say you have a credit card that comes with a Php2,500 annual fee. The bank refuses to waive, and you are willing to have it cut. However, you are thinking it over again and again because the card lets you access premium airport lounges. Is it worth paying the Php2,500 while enjoying lounges every time you travel?
On the other hand, you have a credit card that comes free for life. However, this card does not let you earn points or rewards. It does not even provide discounts and other perks. Is it worth keeping?
If your credit card has more advantages than disadvantages, then let it stay on your purse for as long as it doesn’t trigger you to spend more and incur new debts.
Effects of card cancellation
As expected, you can no longer make any transaction using your credit card. The bank will also forfeit all the rewards you earned. You may also expect to see your credit score drop for a while. All these and more can be experienced whenever closing a credit card account. However, the time has a way of helping you recover.
Closing a credit card is way better than incurring new debts you can’t pay off. Your credit score will recover over time as you keep paying your existing credit card balances and refrain from committing delinquencies. Although credit card cancellation can happen in seconds, make sure you’ve thought about it because the issuing bank may not approve your other applications in the future.
Proper credit card disposal
Once you have your credit card canceled, it is time to dispose of it properly. Other cardholders refuse to cut it down into pieces and keep it in their wallets as a token. However, finance experts would recommend having the credit card cut into pieces ensuring that all information could no longer be pieced back together.
Matter of fact:
Canceling a credit card or closing a credit card account should not be a significant concern if your main goal is to keep yourself out of debt. The impacts can be temporary and minimal. You can always handle your other active credit cards properly to boost your score.
Know how credit cards work and what you need to qualify