April 19, 2025 · 13 mins read
Santhosh Kumar
Credit cards have become integral to financial management, offering convenience in every individual transaction. Managing credit responsibility is crucial, as it directly influences your credit score. Credit cards are convenient for regular users. This helps you to purchase without immediate need of cash or bank balance. Using credit cards offers major rewards and cash back on every purchase. The strong credit is even used to secure loans, for online shopping, booking travel at cheap rates and with many discounts. This mostly helps for emergencies or unexpected times or expenses. The major disadvantage of credit cards is hidden fees or costs; the user's nightmare is paying huge high interest rates or not repaying the card on time, which may affect the CIBIL score. The user should ensure not to miss any payment or make a late payment; it is better to pay it on time or set it to auto-pay for timely payments. So, closing the credit cards as early as possible for these major difficulties is better.
The benefits of paying off a credit card early could be beneficial, but there is more to understand. How could closing the credit card boost higher CIBIL Scores and credit scores? Paying off a credit card gives us the idea of making the payments before the due dates each month or finishing all the payments. This helps lower the credit utilisation ratio by making an extra payment or paying before the closing date.
1: Paying the credit card bill in full can help you avoid interest charges while purchasing products on the card or late fees, which are interest on the product.
2: Credit utilisation is a credit-scoring factor; keeping it lower may help raise your credit scores over time.
1: Make monthly payments after the card’s billing cycle ends but before the payment due date; this is considered a Grace period.
2: Or the individual could make payment before the billing cycle ends.
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Closing a card reduces your total available credit, which can increase the credit utilisation ratio if you already carry the balance amount on other cards. Closing an old credit card can shorten your overall credit history, which is a factor in determining your creditworthiness. The credit ratio, or the amount of credit you use compared to the total available credit, will likely increase, which is a key factor in determining the CIBIL score.
The credit utilisation ratio helps increase or decrease overall credit availability, which contributes to credit score reduction. The common question among credit card users starts with knowing if "closing a credit card early can affect the CIBIL score." These are some factors to consider that can help you make a decision.
Credit cards have become an integral part of modern-day financial management, offering convenience and flexibility in transactions. However, managing credit responsibility is crucial, as it directly influences your credit score. Credit responsibilities encompass the obligations of both borrowers and lenders, including timely repayment, understanding terms, and responsible financial management.
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A credit card can be a great backup tool to tackle any financial emergencies, but there are instances when users may consider closing or cancelling it to avoid overspending. While closing credit cards, customers must remember that it can often impact the CIBIL score. It actually means they are reducing the amount of money available for spending. While closing credit cars, customers must remember that it can often impact the CIBIL score. This is because the credit card shows the amount of credit one can avail. Closing means they are reducing the amount of money available for spending.
According to the co-founder of Smart Coin, "If customers have used only one credit card and they want to cancel it, it could prevent them from having a credit mix on the portfolio, which is one of the parameters in the CIBIL score calculation."
If the customer has a consistent payment history, keeping the account active can retain the account's good standing. When customers close a credit card account, they lose the available credit limit on that account. Credit card payments are the individual's responsibility, including making payments on time, which helps avoid accumulating more interest rates every month and maintain a good credit ratio.
The credit utilisation ratio is the amount of credit compared with our total credit limit.
The individual should be responsible enough to have good borrowing habits and maintain a better credit score.
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The individual should spend according to their revenue, remembering that the interest should be paid once every month or according to their agreement status. Tracking or monitoring expenses and controlling spending habits every month helps in paying the credits on time.
The next important thing is to familiarise yourself with the terms and conditions of that particular bank. Every financial corporation has different terms and conditions. The individual should know the interest rates, fees, and other hidden charges before and after deciding to either open a new card or close the existing one.
Credit card users who use their old credit cards should make a timely payment, which will result in a positive CIBIL score. Cancelling that credit card will result in a lower or negative credit score. The individual should delete the CIBIL score history if they are willing to start afresh or apply for a new credit card. The wise thing to do to retain the CIBIL score from closing a credit card is to transfer the balance amount to another credit card or debit card and repay the amount at a lower interest rate.
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The timing of the closure of the credit cards is also very important. Closing credit cards when the individual has a lot of other debt will result in higher utilisation, as their credit limit reduces with the same debt outstanding amounts. It is advised to close a credit card when customers have exceptional dues in all cards across all the banks. This will only result in damaging the credits of the CIBIL score.
Closing a credit card might increase the credit utilisation ratio (CUR). To calculate the CUR, customers can divide the total of all the credit card balances by the total of all the credit limits; this resulting percentage is the utilisation ratio. Closing a credit card can hurt your credit, even if it is one of the oldest accounts and it is in good standing.
Rewards or cashback do not balance annual fees. They should benefit from financial status and not burden individuals. This is a significant reason for the early closing of credit cards.
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Cancelling the credit card before the considered time could be a negative setback for the individual; they should be more reasonable or responsible in their finances. Budgeting can be one step towards responsible financial management. This could control the obsession with spending more or overspending on unnecessary purchases.
Cancelling credit cards if they do not meet your expectations or fit your strategy or budget is the better approach to dealing with credit card debt. The individual should cancel the credit cards sooner rather than later. This will be most beneficial for both the borrower and the lender.
Here are some advantages of cancelling the card,
1: Prevents over-expenditure Easy access to a credit source leads to over-expenditure.
2: Reduce overall debt Having multiple cards increases total debt, which in turn leads to an increased Debt-to-income ratio (DTI). The higher the DTC, the more difficult it will be to get a loan from any bank or financial company.
3: Reduces the chances of identity theft In this current technological scenario, having multiple credit cards also increases the risk of getting hacked. Having fewer credit cards reduces the chance of becoming prey to fraud.
4: Retains the payment history when you close your credit card, the payment history is not erased from your credit report. If you have good repayment behaviour, it will remain on your credit report for up to 10 years.
5: The card has a high annual fee, and the benefits aren't worth the expenses. One remedy is to ask your card issuer to downgrade your card, as a product change, to a card with no annual fee.
6: The card's interest rate is high, and you need to keep a minimal balance in your account.
7: Struggling to pay the credit card debts is to pay them on time.
8: Overspending with the card.
9: You can get rid of non-profitable cards in exchange for a card with rewards or richer benefits.
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Switching cards is a product change. In many cases, issuers will let you move to a different type of credit card while keeping your account history intact. This is especially helpful if your current card has a high annual fee you can no longer afford.
If the individual is worried that they may overspend on the card, they should stash the card in a safe place. A better option is not saving the card number while online shopping, especially if the card is open. Another option is to block the credit card or the credit account. The healthy alternative everyone tries is pausing the credit account for overspending or for safety.
The credit utilisation ratio is calculated by determining how much available credit you currently utilise amongst the total available credit across different cards. When you close a credit card, the total amount is reduced, resulting in a higher credit utilisation ratio. A high credit utilisation ratio makes obtaining loans or new credit cards harder.
The length of your account history is pivotal in establishing your credit repayment behaviour and worthiness. If the individual has a good repayment track record, having a short record of such behaviour would not help much. That is why it is advised not to cancel older cards, as it can adversely affect the CIBIL score.
Closing a card often affects the credit score. Closing the card amount increases the credit utilisation ratio due to the reduction of the total available credit limit; it often negatively affects the credit score in the short term.
As soon as we close the credit card, the overall credit limit available will be substantially reduced. Thus, you may lose all the rewards and other benefits that your credit card provides.
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These are the major highlights mentioned in this article; closing a credit card will definitely affect the CIBIL score and also drastically impact the credits. Most importantly, the changes will take place in the Credit utilisation ratio, reducing the available credit limit and shortening the credit history and account diversity of the credit cards. However, with careful planning and consideration, the individual can mitigate any potential negative impact on the credit score. The essential factor that affects your credit score is an irregularity in monthly payments over dues. This is much needed for making decisions on credit card management. Hence, the above-mentioned points indicate that “closing credit cards will affect the CIBIL score”.
Yes, the impact depends on your overall credit situation. If you have a high credit utilisation ratio before closing the card, it will likely have a more significant negative effect.
Generally, it is better to keep an unused credit card open with a zero balance rather than closing the card. Closing the card can negatively impact your credit score and potentially increase your credit ratio.
Closing a credit card with a positive balance means you will lose access to that credit line, and your available credit will decrease, potentially impacting the credit utilisation ratio and credit score.
It may be possible to reopen a closed credit card account, but it depends upon the policies of your card issuer as well as other factors, like how long your account was closed or how much it was used before closing, the reason why the account is closed, and the need for reopening the account.
To maintain their credit score, the individual can take out a new credit card or small loan and pay off the bills in EMIs.
Inactivity on credit cards for a certain amount of time, a year or more, will cause them to close automatically. This will reflect on your credit report and can decrease your credit score.
If you are unhappy with a credit card, explore switching to a different card with better terms rather than closing it. Consistent and timely payments are crucial for maintaining a good credit history.
The impact can last a few months, but your CIBIL score can improve again if you continue making timely payments and managing the credit responsibly.
Yes, after closing the credit card, charges may still appear online due to pre-authorised payment.
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