Life might throw you in deep financial
trouble which you would want to resolve immediately. After being unable to
manage your credit card or loan accounts, you might eventually decide to close
it to get out of the sticky situation. It could offer you a temporary relief,
but the ghosts of the past will haunt you forever if not dealt in the right
Closure and Its Negative Impact
When you have too many credit cards and loans, it
can become difficult to manage them with payments or debt burden could make you
default on the repayments. In such a scenario, you may resort to closing your
credit accounts to extricate yourself from the financial burden.
If you have no outstanding amount on your
credit card and closing it would not have any impact on your credit score.
However, as credit history is one of the variables in computing credit score,
closing it would not help you improve your score further. Hence the recommended
action is to close your most recent or unused credit card to lessen the damage.
At times, when you continuously default on
your loan repayments or credit card bills, it will be reported by the lender as
written off status and updated in your credit report by the credit bureaus.
Though you might think, you no longer have to worry about the repayment, your
credit score will take a hit and getting a loan or credit card in the future
becomes difficult. The lenders might be unwilling to approve you any credit
with such credit background.
In another scenario, where you are
completely unable to repay your loan, you decide to settle the loan amount to less
than you owe to the bank after a mutual agreement with the loan issuer. This is reported by the lender and your
credit report appears with ‘Settled’ status. When you apply for a loan and credit
card in the future, settled status is considered as negative by the lenders and
they would hesitate to approve your application.
Can You Close Your Credit Accounts Properly?
best way to close your credit card account is to check if you have any
outstanding dues to be paid. Once you clear the dues, you can get a ‘No Due Certificate’
from your lender stating you have no outstanding amount to be paid. This will
not impact your credit score negatively.
If you have regularly repaid your EMI on your
current loan and completed your repayment, you can get a ‘No Due Certificate’
from the loan issuer. But if you have settled a loan or if it is in written off
status, you may have to clear the past dues and get a ‘No Due Certificate’ from
the lender. After clearing the dues, it will get updated in your credit report
as closed. This will improve your negative credit score and make you
eligible for future loans and credit cards.
Any decision you take in your life will
have consequences. Make sure that closing your old credit cards or loan
accounts does not influence your credit score negatively.