Does closing a credit card affect CIBIL score?
Closing a credit card can be a significant financial decision that can have various implications on your credit score. In India, the Credit Information Bureau (India) Limited (CIBIL) is the leading credit information company that provides credit scores to individuals and businesses. Your CIBIL score is a crucial factor in determining your creditworthiness and can impact your ability to secure loans, credit cards, and other financial services. Therefore, understanding how closing a credit card can affect your CIBIL score is essential.
Impact of closing a credit card on CIBIL score
Closing a credit card can have both positive and negative effects on your CIBIL score. Here are some key points to consider:
1. Reduction in Credit Utilization Ratio: One of the primary factors that affect your CIBIL score is your credit utilization ratio, which is the percentage of your available credit that you are currently using. Closing a credit card can reduce your overall credit limit, which may lead to a lower credit utilization ratio. This can positively impact your CIBIL score.
2. Shortening of Credit History: Your credit history is another crucial factor that contributes to your CIBIL score. Closing a credit card can shorten your credit history, which might negatively impact your score. A longer credit history reflects responsible credit management and can be beneficial for your score.
3. Age of Credit Accounts: The age of your credit accounts is also considered when calculating your CIBIL score. Closing a credit card can reduce the average age of your credit accounts, which might have a negative impact on your score.
4. Closing a Credit Card with High Limit: If you close a credit card with a high credit limit, it may affect your credit score more significantly. This is because it reduces your overall credit limit, which can lead to a higher credit utilization ratio.
5. Closing a Credit Card with Zero Balance: If you close a credit card with a zero balance, it might not have a significant impact on your CIBIL score. However, it is still advisable to maintain a healthy mix of credit accounts to demonstrate responsible credit management.
Conclusion
In conclusion, closing a credit card can affect your CIBIL score in various ways. While it may reduce your credit utilization ratio and demonstrate responsible credit management, it can also shorten your credit history and reduce the average age of your credit accounts. Therefore, it is essential to weigh the pros and cons before deciding to close a credit card. If you must close a credit card, consider the factors mentioned above and choose a card that aligns with your financial goals and credit score.
