You can have more than one credit card in your wallet. Many people have 2-3 credit cards. Some people find it a disadvantage to have more than two credit cards. They close extra credit cards. The question is whether closing a credit card has a negative impact on the credit score?
Your credit score depends on these things
Experts say that your Credit Score It depends on your payment history, credit utilization ratio, period of credit history, type of credit and how many recent inquiries you have made for the loan. Among these, credit utilization ratio is the most important.
Meaning of Credit Utilization Ratio
Credit utilization ratio means what portion of your total available credit you use. Closing credit card affects this ratio. Due to this your credit score is also affected. When you close a credit card, your available credit decreases, while your debt remains unchanged.
Credit ratio suddenly decreases
Suppose you have two credit cards with a limit of Rs 1 lakh. You are using credit worth Rs 50,000. Your ratio is 25 percent. If you close one of these cards, your available credit comes down to Rs 1 lakh. Your ratio decreases by 50 percent. Higher ratios are considered more risky by banks or NBFCs. This may reduce your credit score.
Your account history lasts for 7 years
Your credit age accounts for about 15 percent of your credit score. Closing an old credit card can reduce the length of your credit history. Especially if that account was your initial account. Even though your account is closed, your account history remains on your credit report for 7 years.
Credit mix may also be affected
Closing a credit card also affects your credit mix. Banks and NBFCs are interested in a customer who has multiple sources of credit in his credit account. These include credit cards, loans and other forms of credit. Closing credit cards can reduce your credit mix. Experts say that you should not take the decision of closing the credit card in haste.