Many people today use credit cards for shopping, travel, online payments and other expenses. Some users even keep multiple credit cards to get different rewards and offers.
But when an old credit card is no longer used regularly, people often decide to close it.
While this may seem like a simple decision, closing an old credit card can sometimes affect your credit score.
What Happens When You Close a Credit Card?
When you close a credit card, your total available credit limit goes down.
This can increase your credit utilisation ratio, especially if you continue spending the same amount on your other cards.
For example, if your total credit limit is ₹2 lakh and you spend ₹40,000, your credit utilisation is 20%.
But if you close a card and your total limit drops to ₹1 lakh, the same ₹40,000 spending means 40% utilisation.
A higher credit utilisation ratio can negatively affect your credit score.
Your Old Credit Card Can Strengthen Credit History
An old credit card can also help build a longer credit history. Lenders usually look at your past credit behaviour when deciding whether to approve a loan or a new credit card.
Closing an old account may change your overall credit profile. In some cases, this could affect your credit score and potentially make it harder to qualify for new credit on favourable terms.
Your credit report considers several factors, including your payment history, credit utilisation and the age of your credit accounts.
Think Before Closing an Old Credit Card
Before closing an old credit card, check whether keeping it open would benefit your credit profile.
If the card has no annual fee, keeping it active with occasional small purchases may be worth considering.
However, if the card has high fees or you no longer need it, closing it may still make sense.
Before doing so, clear all outstanding dues, redeem any unused reward points and check how closing the card could affect your total available credit.
The key is not to close an old credit card in a hurry. Understanding its impact beforehand can help you protect your credit score and make a better financial decision.
