Understanding the Impact of Closing a Credit Card on Your Credit Score
Can cancelling a credit card hurt your score? Here's how to minimise the impact on your credit history
Mint
Image: Mint
Closing a credit card can significantly affect your credit score by altering your credit utilization ratio and credit history. To minimize negative effects, consider the card's age, your credit usage, and avoid closing multiple cards at once.
- 01Closing a credit card can increase your credit utilization ratio, negatively impacting your score.
- 02The age of the credit card plays a crucial role; older cards have a more significant impact when closed.
- 03Payment history associated with the card will be lost upon closure, affecting creditworthiness.
- 04Consider keeping older cards with manageable fees to maintain a healthy credit profile.
- 05Regularly check your credit score before and after closing a card to monitor changes.
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Closing a credit card can have a substantial impact on your credit score, primarily through changes in your credit utilization ratio and credit history. When you close a card, you reduce your total available credit, which can increase your utilization ratio if your outstanding balance remains the same. For instance, if you have a total credit limit of ₹1 lakh and close a card with a ₹50,000 limit, your utilization ratio could jump from 30% to 70%. Additionally, the age of the card matters; older cards contribute positively to your credit history. Closing a card with a long history can decrease the average age of your accounts, further impacting your score. To minimize damage, consider keeping older cards with manageable fees and avoid closing multiple cards simultaneously. Regularly check your credit score to assess the impact of your decisions.
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Closing a credit card can lead to a higher credit utilization ratio, which may result in higher interest rates on loans and credit products for consumers. This can affect homebuyers and those seeking loans.
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