Thinking of Cancelling Your Credit Card? Here’s the invisible catch you should know

When Ramesh, a 48-year-old IT professional from Pune, finally cleared the last rupee on his third credit card, he felt liberated. “Why keep it open if I don’t need it?” he thought, confidently snipping it in half.

But what Ramesh didn’t realize was that this small act of financial decluttering could quietly chip away at his CIBIL score.

It sounds logical, doesn’t it? Fewer cards mean fewer debts and less temptation. But the world of credit doesn’t always follow common sense. In fact, cancelling a credit card can send subtle tremors through your credit profile — and here’s how.

1. The Shrinking Credit Facility

Every credit card adds to your total available credit. So when you cancel one, especially a high-limit card, your overall limit shrinks. If your monthly spending habits remain unchanged, your credit utilisation ratio shoots up — and lenders interpret that as a red flag.

For example, if you previously had ₹2,00,000 in available credit and used ₹40,000 a month, you were using just 20%. Cancel a card with a ₹1,00,000 limit, and suddenly you’re using 40% — even though you’re spending the same. That uptick can ding your score.

2. A Shorter Credit Story

Lenders love long-term relationships. The longer your credit history, the more stable and reliable you appear. That’s why closing an old credit card can backfire. You’re essentially erasing a chapter from your credit story — one that may have shown years of responsible usage.

Suddenly, your average credit age drops, and your profile starts to look a bit more “green,” even if you’ve been financially disciplined for years.

3. Fewer Flavours in the Mix

Think of your credit score like a balanced diet — it needs variety. Having a mix of credit types (credit cards, personal loans, home loans, etc.) reflects your ability to manage different kinds of debt. Closing one or more credit cards reduces that credit mix, which can subtly affect your score.

But Wait — Sometimes Cancelling Is the Right Move

“Cancelling a credit card isn’t always a bad move, but it should be done strategically,” says Rohan Bhargava, Co-founder of CashKaro and EarnKaro. And he’s right. There are times when closing a card actually makes more sense than keeping it:

• You’re paying a high annual fee for benefits you never use. If the perks don’t justify the cost, it’s better to opt out.

• You tend to overspend when a particular card is in your wallet. If it’s a temptation trap, cutting it off might be the healthy choice.

• You’re drowning in plastic — five, six, even seven cards. Managing them becomes a full-time job, and you’re constantly worried about due dates and fraud risks.

• Life has changed — maybe a divorce or major financial shift. Shared cards can get messy, fast.

So How Do You Cancel Without Crashing Your Score?

Here’s your roadmap to a smooth exit:

Clear all dues first — This seems obvious, but you’d be surprised how many forget about interest or small pending payments.

Shift your credit usage to another card — Keep that utilisation ratio balanced.

Avoid closing multiple cards in quick succession — Space them out to soften the blow on your score.

Hold onto your oldest card — Even if you don’t use it, its age works in your favour.

Redeem your rewards — Don’t let hard-earned cashback and points disappear into the ether.

Check your credit report post-closure — Make sure the closure is recorded accurately, and no ghost balances linger.

So, the sense of satisfaction from cancelling a card is real but so are the consequences in this credit-driven lifestyle. Approach it like a chess move, not at a spur-of-the-moment as even the right move made the wrong way can cost you points in the credit game.

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