How to Close Credit Card Without Lowering Your Credit Score

Closing a credit card in India is not just about canceling it and moving on. It's crucial to understand how closing a card could affect your credit score. If you don’t follow the right steps, it could lower your score and make it harder to get loans in the future.

In this article, we will guide you through the process of closing a credit card in India without harming your credit score.

How Closing a Credit Card Affects Your Credit Score in India

In India, your credit score is managed by credit bureaus such as CIBIL (Credit Information Bureau India Limited), Equifax, and Experian. These agencies calculate your credit score based on several factors, and closing a credit card can affect these elements.

• Credit Utilization: Closing a card reduces your overall available credit, which could raise your credit utilization rate if you carry balances on other cards. A higher utilization rate can negatively impact your score.

• Credit History: The longer you’ve had a credit card, the better it looks on your credit report. Closing a card that you’ve had for a long time could reduce your average credit history length, which may negatively affect your credit score.

• Credit Mix: A mix of different types of credit accounts (credit cards, loans, etc.) helps improve your score. Closing a card could reduce the diversity of your credit mix.

• Hard Inquiries: If you plan to apply for a new credit card after closing one, it could result in a hard inquiry, which could lower your score slightly in the short term.

Understanding these factors will help you make an informed decision when closing a credit card in India.

1. Clear Outstanding Balances Before Closing Your Card

The first step before closing a credit card is to clear any outstanding balance. This ensures that you avoid late fees, penalties, or interest charges that could negatively impact your credit score. In India, many credit card companies charge high interest rates (ranging from 36% to 42% annually), so clearing the balance will save you from accumulating unnecessary debt.

2. Assess Your Credit Utilization and Available Credit

In India, credit card issuers typically report your credit utilization rate to credit bureaus, which can impact your CIBIL score (the most commonly used score in India). Credit utilization refers to the ratio of your credit card balance to your credit limit. If you close a card, your total credit limit will drop, which could increase your credit utilization ratio.

For example, if you have a total limit of ₹3,00,000 across three cards and a balance of ₹1,00,000, your utilization rate is 33%. If you close one card with a ₹1,00,000 limit, your available credit drops, and your utilization rate increases.

To avoid this, you can request a credit limit increase on your other cards or pay down balances on existing cards before closing the account.

3. Consider the Age of Your Credit Card

In India, the length of your credit history is an important factor in determining your credit score. A longer credit history is beneficial because it shows that you’ve been responsible with credit over time. Closing a credit card that you’ve had for many years can lower your average credit history length, which may lower your score.

If the card you're planning to close is relatively new or has no significant impact on your credit history, closing it may not have much of an effect. But, if it’s an older card, you may want to keep it open to preserve your credit history.

4. Contact Your Credit Card Issuer to Close the Account

Once your balance is cleared and you’ve assessed the impact on your credit score, you can contact your credit card issuer to close the account. The process in India is simple:

• Call or visit the issuer: Contact the customer service department and ask them to close your account. It’s best to get in touch with them over the phone or through their official website.

• Request confirmation in writing: Always ask for a letter confirming that your account is closed with a zero balance. This helps avoid confusion in the future.

• Ensure the account is closed in good standing: Request that your account is marked as “closed by consumer” or “closed in good standing” on your credit report. This ensures that it won’t negatively affect your CIBIL score.

5. Wait Before Closing More Than One Card

If you have multiple credit cards and you plan to close them, don’t do it all at once. Closing multiple cards at the same time can have a major negative impact on your CIBIL score, as it will lower your total available credit and raise your utilization rate.

Space out the closures to allow time for your score to recover. You can also keep older cards open, even if you don’t use them frequently, to maintain your credit history.

6. Monitor Your Credit Report

After closing the card, keep track of your credit score by reviewing your CIBIL report regularly. In India, you can get your CIBIL score for free once a year, and some credit card issuers provide free CIBIL score updates monthly.

Monitor your credit score to ensure that the closure is accurately reported and that your score doesn’t drop unexpectedly. If you notice any discrepancies, you can dispute them directly with CIBIL or the issuer.

7. Alternatives to Closing Your Credit Card

If you’re closing your card because it has an annual fee or you no longer use it, but don’t want to risk harming your score, consider the following alternatives:

• Downgrade the card: If your card has an annual fee, ask your issuer if you can downgrade to a no-fee version of the same card. This allows you to keep the account open without incurring additional costs.

• Leave the card inactive: If you don’t want to pay the annual fee but don’t want to close the card, you can simply stop using it. As long as there’s no fee, this can help preserve your credit history.

8. Don’t Apply for New Credit Immediately After Closing a Card

If you plan on closing a credit card, avoid applying for a new one immediately afterward. New credit applications result in hard inquiries, which can cause a temporary dip in your CIBIL score. It’s best to wait several months before applying for a new card or loan to let your score stabilize.

Be Strategic When Closing a Credit Card in India

Closing a credit card in India doesn’t have to hurt your CIBIL score if done carefully. Pay off your balance, consider the impact on your credit utilization and history, and monitor your credit report. You can also choose alternatives, like downgrading the card or keeping it inactive, to preserve your score.

With careful planning and strategic decision-making, you can close your credit card without worrying about long-term damage to your credit score. By following these steps, you’ll ensure that your credit profile remains healthy and your future financial goals stay on track.