Have you cancelled your credit card correctly?

Watch out what you do with that piece of plastic

Sunanda Menon, 42 year old visual artist had four credit cards. She hardly ever used these credit cards and found herself often wanting to cancel all but one. She was not quite sure how to go about closing her credit card. Should she simply cut them up? Should she inform the bank? She wasn't so sure.

If you are in a similar situation where you want to cancel credit card read on to find out what is the best way to do it.

Step 1

Figure out the credit that you enjoy from each card, the rewards and the fees. Which ones offer you better benefits? Which cards' annual and overdue fees are too high?

Close one account at a time and all things being equal keep the older credit card open and discard the newer ones to help your CIBIL Credit History.

Ensure that you have no pending balances or automatic credits like EMIs on the card you wish to cancel.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Step 2

Call up the customer care number of your credit card issuing bank to intimate them that you wish to close the account. Follow it up with an e-mail and written communication.

The written communication is essential as it helps the bank verify that the request is genuine by matching signatures. Only the primary cardholder can cancel a credit card.

Step 3

Resist all persuasions. Without doubt the bank will make calls and visits to try to persuade you to not go through the cancellations. Until there is an offer that takes away all your reasons for cancellation, stick to your guns and insist on a cancellation.

Step 4

Follow up with the cancellation. Ensure that you get a letter from the bank acknowledging your request. In case you continue to get monthly statements from the bank, contact them again to ensure that the cancellation is under way.

Step 5

Watch your CIBIL Credit Report. It may take several weeks for changes to appear on your credit report. It's your responsibility to be sure the report is accurate, so keep tabs on it. You may also want to watch your CIBIL Score to see if cancelling the card did any damage.

When you're certain the account is closed, cut up your card.

Be aware that cancelling a credit card may actually hurt your CIBIL Score. Part of your score is based on how much of your available credit you actually use i.e your credit utilisation ratio.

When you close a card, this ratio increases because you're using a higher percentage of your credit even though your spending may be the same.