Many Indians Are Closing Extra Cards. But Is That a Smart Move?
If you have an old credit card you rarely use, it may seem wise to shut it down. After all, why keep a card that just sits there?
But before you call customer care to cancel it, understand this: closing a credit card can hurt your credit score. Sometimes, keeping it open (even unused) is better.
Let’s explore the pros and cons.
Pros of Closing an Unused Credit Card
If you have too many cards, closing one may help you:
- Reduce the temptation to overspend
- Lower your chances of fraud or theft
- Avoid unnecessary charges (if there’s an annual fee)
However, only cards with fees really save you money when closed.
Why Closing a Card May Hurt Your Credit Score
Your credit score depends on a few key factors. Closing a card affects at least two of them:
- Credit Utilization Ratio
This is how much credit you’re using versus how much is available. Example:
| Scenario | Total Limit | Used Credit | Utilization |
|---|---|---|---|
| With all cards open | ₹2,00,000 | ₹40,000 | 20% |
| After closing 1 card | ₹1,00,000 | ₹40,000 | 40% |
Higher utilization = lower score.
- Credit History Length
Older accounts improve your score. If you close your oldest card, you reduce the average age of your credit history.
When It’s Okay to Close a Card
There are valid reasons to shut down a card:
- It charges high annual fees and gives no benefits
- You no longer trust the issuer
- It’s a store card with no long-term value
But even in these cases, consider asking the bank to convert it to a zero-fee card instead.
What’s Better Than Closing?
If you don’t want to use the card actively:
- Use it once every 3–6 months for a small transaction
- Pay it off in full immediately
- Set a calendar reminder to avoid forgetting
This keeps the card active and your credit score stable.
Did You Know?
RBI data shows that over 25 million credit cards in India are inactive, but only 5% are officially closed—because users fear credit score drops.
Final Verdict
Closing your unused credit card might give peace of mind, but it could hurt your credit score in the long run.
Unless the card has high fees or security risks, it’s often better to keep it open and use it occasionally.
So before you decide, check your credit score, consider the impact, and if unsure—talk to your bank.
Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, tax, financial, or other professional advice. While every effort is made to ensure the accuracy and reliability of the information, laws and regulations may change, and individual circumstances vary.
Readers are encouraged to consult with qualified professionals or official government resources for personalized guidance regarding their specific situations. The author and publisher disclaim any liability for decisions made or actions taken based on the information provided herein.
