Credit Cards & Loans
You’ve cut up your credit card: what now?
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YourMoney.comWhether your credit card has served its purpose to cover a big expenditure or you want to tackle your debts and stop spending, here’s what you need to know if you decide to cut up your credit card.
Getting rid of the plastic can be a therapeutic first step to help you stop spending on borrowed money, but there are some essential facts and bits of housekeeping you need to be aware of, particularly when it comes to the card’s ‘inactive’ status and the effect on your credit file.
Alastair Douglas, CEO of credit comparison site, TotallyMoney, explains: “Whether or not someone physically cuts up their credit card, what we’re talking about here is closing credit accounts.
“If you have credit accounts you no longer use and wish to close, then contact your lender and let it know. So long as you have no outstanding balance it will be closed for you.
“If you do have an outstanding balance on your card then you can shift the debt to a 0% balance transfer credit card to help reduce the cost of paying it off. Always check your eligibility before applying with a comparison service so it doesn’t leave a trail of applications on your credit file. Once you’ve cleared the balance you can close the account.”
A bit of housekeeping on inactive accounts is a good idea as it can help reduce the chance of fraudulent activity that might go unnoticed.
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Signing up for a free credit report gives you access to information about all your credit accounts going back six years. This can help you identify any accounts that you’re not using.
Using a credit account regularly and responsibly, paying off your balance on time each month and keeping well within your credit limit, can help you build a better credit score.
Be aware that different card issuers will have different inactivity policies (anywhere from between 30 days from your last statement to 12 months) so it’s best to check your existing agreement to avoid unwanted cancellation.
Also, inactive credit cards might hold you back on credit applications as lenders will see that you have unused available credit and may be wary of offering you more. Lenders will question why the customer is requesting more credit when they’re not using the credit already available to them.
If you are struggling with debt, see YourMoney.com’s How to get out of debt for more information and practical steps to help.