There can be myriad reasons for the credit card to get canceled. It could have been initiated by the card holder or by the card company. While a self-initiated cancellation is still what you would be aware about, a bank initiated cancellation can be quite embarrassing since the information on same does not flow seamlessly. Imagine a situation where you are trying to complete a transaction in a store and the card gets declined for reason “declined by the issuer”.
Whatever may be the reason for cancellation, it is definitely going to impact your credit score. Credit cards in fact impact the credit score in a large way and facilitate a higher score if managed properly.
The first advice is that you should not initiate cancellation of card at all unless there is a dire need to do it. Second advice being that you must get in touch with the issuing bank in case the same has been initiated by them. The primary reasons for a bank to initiate the cancellation being:
In any ways, the card has been canceled and it would adversely impact the score. To understand why and how should this result in lowering the score, read on further.
Your credit score is an outcome of various parameters. Following are the broad five parameters that result in calculating credit score.
Credit card impacts payment history
The loans are for a fixed term and generally get paid off faster than the actual term. In fact even the long term loans like a home loan where the starting term stands at about 20 years get paid off in an average of 10 years. Against this, the cards can continue to be there for far longer. The longer the history of repayment available, the better it is for the CIBIL rating. So cancellation of a long held card will have an immediate impact on the credit score.
Credit card impacts amounts owed
Amount owed is nothing but the actual amount you have as an outstanding against the actual loan amount. A credit card can impact this factor positively since it is a line of credit and does not necessarily gets used completely. A lower usage of credit limit will result in higher difference in the amount extended and actual amount owed by you. Thus it becomes important to have this in your credit portfolio.
Credit card impacts length of credit
As mentioned earlier,credit card is the only form of credit that can be owned for a quite high period of time. And thus it positively impacts the CIBIL score.
Credit card impacts the credit mix
Your performance on variety of credit instruments is definitely a positive as far the credit score is concerned. A mix of secured, unsecured and revolving credit is of high advantage in context to your score. And card is the easiest and most advantageous credit instrument as far as the revolving credit instruments are concerned.
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