Closing Unused Credit Cards: What You Need to Know Before You Decide

If you have multiple credit cards, closing unused ones may seem like a smart move. But in reality, it is not always the right decision. Closing a credit card can directly impact your credit score, especially if it affects your credit history or total credit limit.

In this guide, you will learn how credit card closure impacts your score, when you should consider closing a card, and the correct way to do it.

Credit Card Closure and Its Impact on Credit Score

Closing a credit card mainly affects two important factors:

Credit History Length

Your credit score depends heavily on how long you have been using credit. Older cards improve your credit profile.

• Closing an old credit card reduces your credit age
• A shorter credit history may lower your credit score
• Lenders prefer users with long and stable credit history

Tip: Avoid closing your oldest credit card, especially if it is more than 2–3 years old.

Credit Utilization Ratio (CUR)

Credit Utilization Ratio is the percentage of credit you are using out of your total limit.

• Unused cards increase your total available limit
• Closing a card reduces your total limit
• This increases your utilization ratio, which can reduce your score

Example

If your total limit is ₹4,30,000 and you use ₹1,10,000 → CUR is 25.58%
After closing a card, total limit becomes ₹2,15,000 → CUR increases to 51.16%

Higher CUR indicates higher credit dependency, which negatively impacts your score.

When Should You Consider Closing a Credit Card?

Closing a credit card is not always bad. It can be a smart move in certain situations:

• High annual fee with low benefits
• Card features do not match your spending habits
• You have too many credit cards to manage
• Card has a very low credit limit
• You are not able to maximize rewards or benefits

When You Should Avoid Closing a Credit Card

Avoid closing a credit card in the following cases:

• It is your oldest credit card
• It has a high credit limit
• It has no or low annual fee
• You are planning to apply for a loan soon

Keeping such cards active helps maintain a strong credit profile.

The Right Way to Close a Credit Card

If you decide to close your card, follow these steps carefully:

Clear Outstanding Dues

Pay all pending bills to avoid penalties or delays in closure.

Redeem Reward Points

Use your accumulated reward points before closing the card.

Cancel Auto Payments

Disable any subscriptions or auto-debits linked to the card.

Check Terms and Conditions

Understand closure charges, timelines, and policies.

Avoid Multiple Closures

Do not close multiple cards at once to prevent a sudden drop in your credit score.

Request Written Confirmation

Always get a confirmation from the bank after closure and check your credit report.

RBI Guidelines on Credit Card Closure

• Cards must be closed within 7 working days after request (if dues are cleared)
• Delay in closure may lead to penalties for issuers
• Unused cards may be deactivated after 1 year
• Credit bureaus must be updated within 30 days

Final Thoughts

Closing an unused credit card is not always the best decision. While it may help you avoid annual fees, it can negatively impact your credit score if not done properly.

Before closing a card, evaluate its impact on your credit history and utilization ratio. Make a decision based on your overall credit profile and financial goals.

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