Most of us have some at least one credit card in our wallet that we don’t use anymore. And we would have thought about closing that credit card rather than carrying that dead weight. But have you ever thought about what does closing an older credit card does to your credit score and financial profile? In this article we will see in detail about the consequences of closing an older credit card and how to do it in a more calculated manner.
Impact to Credit Utilization ratio
When you close a credit card then the limit on that credit card also ceases to exist for you. Unless you reduce your expenses proportionally, your Credit Utilization Ratio (Amount of revolving credit / Total credit available to you) will increase.
Any significant increase in the CUR is not good for credit score and affects it negatively. So unless the card you are about to close has very low credit limit, you may want to keep that card around for a while till you get your overall credit limit increased on other cards.
Impact of Credit Utilization Ratio on score: High
Impact to Credit History
Another factor that is considered while calculating the credit score is the credit history. Credit history is nothing but the age of the loans and credit cards that you hold. The older a loan or credit card is the longer it has been on your profile and has been helping to build your credit history. Borrowers with longer credit history are seen more favorable by banks as longer history means more data and information is available about borrowers payment behavior.
If the credit card you are about to close is one of the oldest card among all the cards that you hold, then you should keep that card. Otherwise, there is no concern is closing that credit card.
Impact of Credit History on score: Medium
Have you closed any credit card recently? Feel free to share your views in the comment section below
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