Know them and benefit from it
Some people take pride in having as many credit cards as their wallet allows them to hold. But the ones who have had too many know the pains of keeping track of payment due dates, making the payments and ensuring that you are not billed wrongly.
So after you have burned your fingers over so many cards, if you plan to close the cards you don't use, it is important to know the myths surrounding the process:
Myth: Closing a credit card reduces your debt
Reality: Closing a credit card does not reduce your debt burden by a single pie. If you owed a lender Rs 10,000, they won't close your account until you have paid the entire amount due.
Myth: Closing a credit card loses the credit age of the account
Reality: A 5-year debt is a 5-year old debt, it will be a 6 year old debt in a year's time. The credit score will even record the date of opening the credit card account.
Even the accounts that are closed continue to age, because the Cibil report will still give your information on repayment history.
Myth: Closing the credit card knocks off your Cibil score
Reality: This is to some extent true. Closing a credit card with a high credit balance does affect your score temporarily.
Instead close a card with a lower limit.
When you close a credit card you will reduce your overall credit limit, which can lower your credit scores. The fall in score depends on how much of debt you carry on other credit cards.
Photograph: Gonzalo Malpartida/Creative Commons
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.
