CIBIL Score: These days, credit cards have become a part of the financial lives of almost every middle-class family. Whether for shopping or household needs, card usage has become commonplace. However, sometimes people consider closing their cards due to misuse or high annual fees. However, closing a credit card isn’t just a way to reduce spending. It can impact your CIBIL score, significantly impacting future personal loans, home loans, or car loans.

Negative Effects of Closing Old Cards

Closing credit cards has the greatest impact on the credit utilisation ratio (CUR) and credit history. For example, if you have two cards with a total limit of ₹2 lakh and you spent ₹50,000, the CUR is 25 percent. If you close a card with a limit of ₹1 lakh, it will increase to 50 percent, potentially causing your CIBIL score to drop by 50 to 100 points. Additionally, closing old cards shortens your average credit history, which is considered negative by banks and loan agencies.

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Credit Mix and Impact on Score

Credit mix means that you have a balance of different types of credit, such as credit cards, home loans, and personal loans. If you close a card, this balance can deteriorate and impact your CIBIL score by approximately 10 percent. Therefore, closing old and high-limit cards can be more detrimental than closing new cards.

Advantages and Disadvantages of Card Closing

Closing a credit card has some advantages. It saves annual fees, makes spending control easier, and simplifies card management. Closing a card may also be necessary during major life changes, such as changing jobs or changing financial plans. The disadvantage is that your CIBIL score may drop, making loan approval difficult or resulting in higher interest rates. While old cards may have a positive payment history, the overall impact can be negative.

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Important Tips Before Closing a Card

There are several important steps to take before closing a credit card. First, pay off the card’s outstanding balance in full. Redeem accumulated reward points, and if possible, transfer the balance to another card to keep CUR under control. Avoid closing cards all at once; maintain a gap of at least six months. It’s important to monitor your CIBIL score after closing. If you prefer, you can put the card in “sleeping” mode—keeping it open but not using it. With proper planning and timing, closing a card can be beneficial.