One of the most common complaints of credit card users is that they continue to receive statements from the bank showing unpaid dues even after they have got the card cancelled.
Let?s take the case of Satish who was using a credit card from ABC Bank. Realising that he did not receive much benefits from the card, he decided to cancel it.
Step 1: Satish contacted the customer service desk of the bank and found out the actual amount outstanding against the card.
Step 2: He made an online payment for this amount, thus clearing all dues on the account. Sometimes, the amount outstanding is quite huge for an individual to pay at one go. In such a case, make regular payments. If monthly payments are made, you will still accrue interest on the balance and the final payment should include all fees and charges. Satish kept a record of his payments as proof.
Step 3: On making the full payment, he contacted the customer service desk and placed a request for cancellation of the card. He made a note of the date and time of the call, as well as the name of the representative who took down the request. Satish also got a request confirmation number, which would be the reference number for all future correspondence on the request.
Step 4: Satish then wrote to the credit card company and sought verification that the account had been closed. He mentioned the details of his call and sent the letter through registered post, so that there was a legal record.
Step 5: After a few weeks, he received confirmation from the bank that the credit card had been cancelled and the account closed. He then proceeded to cut the credit card into small pieces across the magnetic strip. This completed the cancellation process.
Things to keep in mind while cancelling a credit card
The most important thing to remember is that the bank will not cancel your card unless you have paid all dues. These not only include the expenses you incurred on your card, but also all interest, fees and charges due. Sometimes, you may cancel your card after the billing date, and as a result, there may be a residual amount that is not reflected in your last statement.
Most customers feel that some card charges are unfair and proceed to cancel the card without paying these. However, the bank will not cancel the card unless you pay off these dues. Further, you will have to continue paying interest and late payment charges on these dues till you settle everything.
Simply cutting the card into pieces at your end and mailing it to the bank will not cancel it. Insist on getting a written acknowledgment from the bank that the card has been cancelled.
Does closing a credit card affect your credit score?
Closing a credit card can reduce your credit score. This is because you are reducing your overall credit limit by closing a card. As a result, your credit utilisation will go up on an overall basis. Let?s assume you have three cards with a total credit limit of R1.5 lakh and you spend R75,000 in a month. So, your credit utilisation is 50%. Now, supposing you want to close one of the cards that has a credit limit of R50,000 ? then your overall credit utilisation will be 75%. This would suggest that you are credit-hungry in nature.
It is better to close unused cards to prevent misuse. However, if you wish to close more than one card, you should do so gradually. The older the credit history, the better it is for your credit score. You must always look at keeping older credit cards alive, and close the newer ones if the need arises. This is because the history of closed, unused cards goes off the report after some years.
What are the effects if the credit card is not closed properly?
If you do not follow the proper steps in closing the card, there may be a case when there is an outstanding balance on it. For instance, if you do not get an acknowledgment from the bank, it may charge renewal fees which will get showed as unpaid dues even though you may have destroyed the card. This will get carried on month after month, attracting penalties. This will automatically impact your credit score, affecting your future prospects for availing a loan.
The writer is CEO, BankBazaar.com
