Does Closing a Credit Card Affect Your Credit Score?

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Does closing a credit card affect your credit score?– This is the first question that comes to our mind when thinking about terminating our credit account. While most credit cards in the UAE come with several amazing benefits and features, there can be some instances where you might have to cancel your credit card. The reasons can be anything from high-interest rates to no use or finding a better program. 

So, does closing a credit card affect credit score? The answer is yes, cancelling a credit card randomly can negatively impact your credit score. This is especially true when your account is mature or has been open for years. Let's learn more about it!

How Closing a Credit Card in the UAE Can Affect Your Credit Score?

Cancelling a credit card in the UAE can hurt your credit score in multiple ways. Some of them are as follows:

Loss of Available Credit Limit

When you cancel your credit card, you lose the credit limit available on your credit account. This causes a spike in your credit utilization ratio, which in turn signals your lenders that you're using a higher amount than the available credit limit. Ideally, it is recommended to keep your credit utilization rate below 30% or as low as possible. 

Lowers the Age of Your Account 

Another way the closing of a credit card can impact your credit score is, that it reduces the age of your credit account on your credit report. This is especially true if your account has been active for a good amount of time. Note that the age of your accounts plays a very important role in maintaining the health of your credit score. While this doesn't directly impact your credit score, the terminated accounts with missed or overdue payments remain on the credit report for around 7 years. 

Also note, that your AECB credit score may decrease soon after the closing of your credit card. However, it will get back to normal in a couple of months if you keep making your payments on time. It shows that you have closed your account and didn't have any debt, but it takes time. Therefore, if you're planning to apply for a loan or mortgage in a few months, it is advisable not to close your credit card. 

When Should You Consider Closing Your Credit Card?

There are some cases where closing a credit card makes real sense. Some instances are as follows:

  • Your credit card comes with higher annual charges and finance rates and the benefits are not worth these expenses. 
  • You are struggling to carry your debt load and you're exceeding your credit limit frequently. 
  • You want to replace your credit card with a better option with better rewards and fewer annual charges. 

When Should You Consider Keeping Your Credit Card?

In some situations, it is recommended to keep your credit card up and running. Some of these cases are as follows:

  • You're closing it just because you don't use it much. 
  • It is the oldest account mentioned on your credit report. 
  • You don't have other credit accounts. This can result in a thin credit file, which can make it harder to apply for future credits. 

Alternatives to Closing a Credit Card in UAE 

If you want to keep your credit card but circumstances are forcing you to close it, here are some ways in which you can handle the issues that are bothering you:

  • If you're dealing with high annual charges and interest rates, contact your card issuer and request them to lower the charges. Some credit card issuers in UAE lower the interest rates and even waive the fee for some time to retain their customers. Moreover, if you're looking for credit cards with amazing benefits and lower annual charges, we can help. We have some of the top credit card issuers on our website in the country.  
  • If you're closing it because you're afraid that you may end up exceeding your limit, then ask your card issuer to freeze your account for some time. 
  • If you're closing your credit card just because you don't use it, make at least one small recurring payment using it. It can be a subscription service or any bill. This will keep your credit account up and running. 

How to Close a Credit Card Safely in UAE?

If you think that it's necessary to close your credit card, here are the steps to do it safely:

  • Pay off your outstanding balance before closing your credit card. 
  • In case you have a rewards card, redeem all the available rewards so that you don't end up wasting them. 
  • Contact your credit card issuer and let them know about your decision to close your credit card. Ask them to confirm it with a written notice. Also, make sure that they mention that your account is closed at your request and not for other reasons. 
  • Write a short letter to confirm your credit card cancellation. Mention all your details like name, account number, contact number and details of your previous call with the customer care executive in this letter. Also mention that this account needs to be closed by your request. Note that this process can take up some time. So, be patient. 
  • In case your credit card is linked with any automatic payment, such as any EMI or subscription service, go through these accounts and make sure to update the payment information to some other option. 

Always Check Your Credit Report Before Closing a Credit Card 

Closing a credit card may be a good option under certain circumstances. However, before you do that, it is very important to take a look at your credit report as this closing can hurt your credit score to a great extent. Make sure that the closing of your credit card won't result in a credit report that is too thin. Always consider keeping your credit card if you're able to do so. 

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