Closing a credit card may seem like a simple and simple financial decision, especially if you try to reduce unnecessary expenses or to prevent substantial fines and late payment costs.
In India, however, this step can affect your credit score and your overall credit profile in a negative way.
That is why it is important to understand how you can plan a credit card closure well.
Let’s look closer to how closing a credit card influences your credit score and how you can wisely manage credit card closures to protect your credit health in India.
Impact of credit card closure on your credit use ratio
It is important to always remember that your credit use ratio is one of the most critical components of your credit score. This ratio indicates how much of your available credit you use. A higher ratio means that you have a higher dependence on credit to survive, which is generally not loved by lenders.
For example, Suppose your total credit limit is for all credit cards £1 Lakh, and you close to a card with a £50,000 limit. In that case, your available credit suddenly drops, as a result of which your total credit use ratio may be increased.
Higher credit card use clearly indicates credit dependence and trust, which indicates a serious risk for lenders. In general, experts suggest that one should concentrate on maintaining a credit ratio under 30% to keep the credit profile and the credit score healthy. That is why a sudden and unannounced jump in credit use ratio as a result of a card closure can have a negative influence on someone’s rating and credit profile.
Limited credit history can have a negative influence on your credit score
Your credit history and the length are important components of your credit score. Older accounts show financial stability, good credit health and consistency over time.
That is why if you close an old credit card, especially one that has been active for more than a decade, your average accounting age will immediately decrease. Although a closed credit card stays on your credit report for years in a good status, the positive impact on your credit score decreases over time.
Loss of a good payment record
Your payment history is good for a large part of your credit score. If the closed card had a strong track record of timely repayments, it means closing that it has removed an account that has increased your creditworthiness. This can harm your score somewhat, especially if other open accounts do not have such a positive history.
When should you consider closing a credit card?
Despite the risks, there are legitimate reasons to cancel a card:
- High annual costs with minimal benefits.
- Fraud or security problems.
- Transition to a map with better rewards or interest rates.
- Comparison of even small remaining payments in huge amounts.
Therefore pay before you pay the full outstanding amount. You can also consider a balance transfer to another card with a lower interest rate. Start with newer cards instead of older credit score impact.
Tips to minimize the credit score and damage to credit profile
To prevent unnecessary impact on your credit score:
- Keep older cards open if they do not have annual costs.
- Do not close any more cards at the same time.
- Check your credit score before and after closure.
- Try to use the card occasionally to keep it active.
Conclusion
Finally, to close a credit card, your credit score will certainly reduce by increasing your credit use ratio, erase positive payment records and reduce the length of your credit history under normal circumstances. Yet with sensible credit card planning and correct timing you can minimize the impact and manage your finances efficiently.
Disclaimer: Mint has a bond with fintechs for providing credit; You must share your information if you apply. These tires have no influence on our editorial content. This article only plans to teach and distribute consciousness over credit needs such as loans, credit cards and credit scores. Mint does not promote or encourages taking credit if it comes with a series of risks such as high interest rates, hidden costs, etc. We advise investors to discuss with certified experts before we take credit.
