As the year ends, many people in India review their finances. They check spending, cancel subscriptions, and often consider closing unused credit cards. Closing a card can feel like a smart decision. Fewer cards may mean less temptation and easier control over spending. But credit cards are more than just payment tools. Closing one can affect your credit score in ways you might not expect, especially if it is an older card or one with a high credit limit.
Experts say that every credit decision, including closing a card, can shape your credit profile. Understanding the impact of closing a credit card is important for anyone planning to take loans, buy a home, or make big financial commitments.
One of the biggest effects of closing a credit card is on your credit age. Credit bureaus track how long you have had credit accounts, and older accounts help improve your credit score. If you close your first or oldest card, your average credit age may drop, making your profile look younger.
“A longer credit history signals reliability. It shows lenders that you have been trusted with credit over time and managed it responsibly. Closing your first card can make your profile appear less established, even if you have always paid on time,” said Manish Shara, Co-founder and CEO of ZET.
Credit history is a key factor for lenders. It tells them that you are consistent and trustworthy with money. Older cards are important because they reflect years of responsible borrowing. Even if a card is rarely used, keeping it open can help maintain a strong credit profile.
Another consequence of closing a card is its effect on credit utilisation, the ratio of your current credit balance to your total available credit. Closing a card reduces your total credit limit, which can increase your utilisation ratio if your spending remains the same. A higher utilisation ratio may signal higher risk to lenders, potentially lowering your score. Many people are surprised when their credit score drops after closing a card, even if they have never missed a payment.
Credit cards also influence your credit mix. This mix shows lenders the variety of credit you use, such as loans, buy-now-pay-later products, and credit cards. Closing a card removes one type of credit from your profile. For those with few credit accounts, this reduction can make their credit story look thinner. Lenders prefer to see responsible use across different types of credit rather than relying on just one product.
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Although closing a credit card can affect your credit score, it is not always a bad choice. Cards with high annual fees, low benefits, or little long-term value may not be worth keeping. Similarly, cards that were used briefly or taken impulsively may not significantly impact your credit profile if closed.
For newer cards, the effect on credit age is smaller, especially if you already have older, well-maintained cards. It is important to clear all dues before closing any card and ensure that your stronger accounts remain active. This approach helps reduce the negative impact on your credit score.
Experts advise using older cards occasionally, even with small transactions. This keeps the account active and maintains your credit history. For those planning big loans like home or car loans, a long-standing card demonstrates stability and reliability to lenders.
Credit health is built gradually. Scores are influenced by patterns over time, not one-off actions. Thoughtful decisions, such as keeping older cards and closing only newer or less useful ones, often lead to better results than simply closing cards for the sake of cleaning up.
“Credit scores are built slowly and influenced by consistent behaviour. When it comes to credit cards, sometimes keeping what you already have is the smartest move,” Shara said.
In conclusion, closing a credit card is not a decision to take lightly. Consider the age of the card, your total credit limit, and your credit mix before acting. Older, low-cost cards provide value beyond convenience—they help maintain a long, healthy credit history. Closing a card should be part of a careful financial plan, not a reflexive year-end clean-up. By understanding these effects, you can make informed choices and protect your credit health for future financial needs.
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