The decision to close a Credit Card should be guided by long-term view and impact on credit score.

If you have a Credit Card that you hardly use and are considering closing it, it is wise to consider all your options before finalising the decision. While closing an unused Credit Card seems like a no-brainer, there’s more to the picture. As Credit Card usage influences your credit score, you want to consider the impact of your choice. Gain more clarity on what this means and if it is good to close Credit Cards in this blog. 

People may wonder, “Can we close a Credit Card?” for many different reasons based on their financial goals and circumstances. Some of the common reasons include:

• Annual Fees Outweigh Benefits: The value received from Credit Cards in the form of rewards, cashbacks, and features may not seem worthwhile compared to maintenance fees.

• Curbing Expenditure: You may also choose to cancel your card to reduce the temptation of overspending and exercise better control over your finances.

• Restructuring Finances: Based on existing debt, spending patterns, and budget, can lead to re-analysing all financial products, including Credit Cards.

• Changing Needs: A Credit Card that once suited your lifestyle and spending needs may become less relevant to your evolving priorities. 

It is generally considered better to maintain used Credit Cards than to close them, even if you use them infrequently. An older Credit Card leads to a longer credit history and a higher available credit limit. Both aspects reflect positively on your credit report. Unless the Credit Card carries higher costs, and you don’t intend to use it anymore, it may be worth considering the long-term benefits before closing it. 

Closing your Credit Card can have the following effects on your If credit score:

• High Credit Utilisation Recommend H3 Tag

Closing your Credit Card results in a lower available credit. As you try to manage your spending needs with a limited credit limit, your credit utilisation ratio, the portion of credit used, increases. This negatively impacts the credit score.

• Shortened Credit History Recommend H3 Tag

As older accounts add to your credit history, closing a Credit Card reduces the average age of your active accounts. With the reduced insights into your credit history, your credit score may take a hit.

• Reduced Diversity Recommend H3 Tag

A healthy credit mix is another factor affecting the credit score. It shows your ability to manage different types of credit. By closing a Credit Card, you reduce the variety of accounts in your portfolio, which affects this aspect.

For a well-calculated decision that you won’t regret later, consider these aspects before you close a Credit Card:

• Unused Rewards: Redeem all the reward points if they’re still valid against eligible payments.

• Linked Payments: Update auto-pay instructions for recurring payments like utility bills, subscriptions, EMIs, etc.

• Card Age and Existing Cards: If the Credit Card is old, closing it can have a significant impact on credit history. Consider this and your available credit to make an informed decision. 

After careful consideration, if you’ve decided to close your Credit Card, you can follow these steps:

1. Clear Pending Dues: Ensure all pending balances, EMIs, and fees are cleared before initiating the closure request.

2. Contact the Card Issuer: Reach out to your issuer through their website, mobile app, customer service, or by visiting the branch to submit the closure request.

3. Submit Request: Once you’ve met the pre-closure conditions subject to your issuer, you can submit a formal request through your intended channel.

4. Get Closure Confirmation: Once your request is processed, obtain a written confirmation of the Credit Card account closure.

5. Review Credit Report: Check if the Credit Card is reflected as closed, and all the dues cleared are registered in the credit report

Once you’ve evaluated every aspect of opening and closing a Credit Card, you can shape your credit journey effectively. Based on your credit needs and financial situation, you now have more clarity on what to expect. So, for your next Credit Card, consider HDFC Bank Credit Card to find options that align with your lifestyle, while maximising savings through rewards and complimentary benefits.

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*Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit Card approvals are at the sole discretion of HDFC Bank Limited. Credit Card approval is subject to documentation and verification as per the Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.