How Incorrect Closure of Credit Card and Loan Accounts Give Negative Impact?
How Incorrect Closure of Credit Card and Loan Accounts Give Negative Impact ?
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 way.
How Incorrect Closure of Credit Card and Loan Accounts Give Negative Impact ?
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 way.
Incorrect 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.
How Can You Close Your Credit Accounts Properly?
The 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.
End Note
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
Related Articles
Missing A Single Payment Will Affect Your Credit Score?
Missing A Single Payment Will Affect Your Credit Score?
Most people try to put off financial work till the last minute or forget completely about it until it is either past the due date or if we are forced to do it. We do not at times take financial obligations seriously and do not fully understand the implications of this tardiness until it is too late.
Tags Credit Card