Getting a credit card is easy but closing it needs a checklist of tasks

Get a confirmation letter from issuer confirming closure, ensure it says you have no dues

Neha Sinha (name changed on request), a 37-year-old Delhi-based advertising executive, recently attempted to close a rarely used credit card. A procedure she thought would be simple and quick turned out to be quite prolonged. When she called the bank’s customer support, she was bombarded with questions on why she wanted to close the card. “They tried to persuade me not to cancel it. They even offered me incentives. Then they stalled. I was transferred to the cancellation department, where they again tried to dissuade me,” she says. Only when she remained adamant was the closure procedure initiated.

Getting a card is easy. Nowadays, preapproved cards can be obtained with just a few clicks. However, if you thought cancelling a card would also be a cinch, you might be in for a reality check.

Diverse procedures

Closure procedures are not uniform across players. “Customers who are not well-informed about their issuer’s process may face difficulty in closing their credit card,” says Adhil Shetty, chief executive officer (CEO), Bankbazaar.com.

Issuers also have customer retention policies. “The customer service personnel may try to dissuade you from closing the card by offering various incentives,” says Ankush Setia, co-founder, Multiply.

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When to close a card

Closing a credit card is the right move in certain circumstances. “If you have a card with an annual fee that you don’t use, it’s better to close it,” says Sumanta Mandal, founder, TechnoFino.

Closing is also justified if the rewards on it have been reduced. “Cards sometimes undergo massive devaluation,” says Rohit Chhibbar, head of credit cards business, Paisabazaar.

Setia points out that salespersons sometimes exaggerate a card’s benefits.

Users’ spending patterns change over time. “The fee could be high while the rewards may no longer meet your needs,”says Shetty.

Some card users who have too many cards overspend and struggle to cope with the repayment schedule. “If you have multiple credit cards and want to streamline your repayments, closing some of the lesser-used ones can reduce the risk of over-leveraging and simplify your payment schedule,” says Sajish Pillai, managing director, head of assets and strategic alliances, consumer banking group, DBS Bank India.

Steps to take before closing

Evaluate your cards based on criteria such as annual fees and rewards. “Determine if specific perks are frequently used or have significant value, such as travel rewards, discounts, cashbacks, or other incentives,” says Pillai.

You may be using the card for recurring payments. “Standing instructions for EMIs, utility bills and subscriptions will prevent the card closure request from being processed,” says Mandal. Shift them to another card before applying.

Clear all outstanding dues — principal amount, interest charges, EMI or any other fees pending on the card. 

Chhibbar  suggests redeeming any accumulated reward points as unutilised points will be lost forever once the card is closed.

Initiate the procedure at the right time. “Inform the issuer at least a week before the bill generation date so that all dues get included in the final bill,” says Shetty.

If you have disputed an unauthorised transaction on a card, do not close it. “A card account needs to be active for a transaction to be reversed,” says Shetty.

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Step-by-step guide

Call up the issuer’s customer care centre and inform them of your intention to close the card. Follow up with a written request, either through your internet banking account or by sending an email to the bank’s customer care email ID. Ideally, use both methods. “Having a written record of your closure request is crucial,” says Shetty.

Next, ensure you receive a confirmation letter or email stating that your card has been closed. If there is a statement of final settlement, it should be included in the letter or email. “Only after receiving this final confirmation should you destroy the card to prevent misuse,” says Shetty.

After closing a card account, check your credit report to make sure the closure is reflected in it and there are no outstanding dues.

Mitigate impact on credit score

Closing a credit card can sometimes affect your credit score. “Closing one of your oldest card accounts will shorten the average age of your credit, which could reduce your credit score,” says Chhibbar.

Moreover, closing a card can change your credit utilisation ratio. Setia points out that especially if you close a card with a higher credit limit, the total credit available to you would decrease significantly. If your spending remains the same, your credit utilisation ratio will increase. “Maintaining a lower credit utilisation ratio is generally favourable for your credit score, so ensure that closing a card does not significantly increase this ratio,” says Pillai. Setia informs that up to 30 per cent credit utilisation is deemed a safe level.

Try to keep your oldest credit card open to maintain the length of your credit history. “Older credit accounts contribute to a longer and more robust credit history, a factor in credit scoring. Therefore, it may be advantageous to close newer cards rather than older ones, if their benefits are comparable,” says Pillai.

If it is an old but expensive card that doesn’t offer attractive rewards, Shetty suggests asking the issuer to downgrade it to a no-fee card instead of closing it. You could also move to another card whose rewards match your spending preferences.

To keep the credit utilisation ratio low, pay the balances on your other cards. Finally, Mandal says that if the issuer does not close your card despite your request, you may seek relief by approaching the banking ombudsman. In case of prolonged delays, customers have in the past received hefty compensation.

Penalty applies if issuer delays card closure

> Any request for closure of a credit card must be honoured within seven working days by the credit card issuer, subject to payment of all dues by the cardholder

> Card holders must be provided the option to submit request for closure of credit card account through multiple channels

> Card issuers must not insist on closure request through post, which could cause delay

> Failure on card issuer’s part to complete the closure process within seven working days would result in a penalty of Rs 500 per day of delay payable to the card holder till the closure of the account, provided there is no outstanding in the account

Source: RBI master direction dated April 21, 2022