Thinking of cancelling your credit card? Here’s how It affects your credit score

Planning to close a credit card? While it might seem like a simple decision, it can have a noticeable effect on your credit score and borrowing power — especially in India, where credit history plays a big role in financial credibility.

Why It Matters

A credit card is a tool that lets you borrow money with the promise of paying it back on time. But cancelling one comes with consequences. It can affect your:

Credit utilisation ratio (how much credit you use vs. what’s available)

Credit history length

Pending payments or defaults

Overall credit mix (the variety of loans and credit accounts you hold)

Expert Speak

In a recent chat with Mint, Rohan Bhargava, Co-founder of CashKaro and EarnKaro, said,

“Cancelling a credit card isn’t always a bad move, but it should be done smartly. It can hurt your credit score by increasing your utilisation ratio, shortening your credit history, and reducing credit mix.”

He added that, for example, someone with an excellent score of 780 could see a drop if they cancel an old, high-limit card.

With people becoming more careful about their spending — credit card dues have grown just 15.6% this year compared to 32.5% last year — it’s clear that financial habits are changing.

When Should You Cancel a Credit Card?

Here are a few situations when cancelling a card might make sense:

High annual fees: If the card’s yearly charges outweigh its benefits, it might not be worth keeping.

Overspending: If a card encourages you to overspend and land in debt, cancelling it can help you regain control.

Too many cards: Managing multiple cards can get confusing and increase the risk of missed payments or fraud.

Life events: Situations like divorce or separation may require closing joint cards to manage finances better.

How to Cancel Without Hurting Your Score

If you do decide to close a card, here’s how to reduce the impact:

Pay off any outstanding dues before cancelling to avoid penalties and interest.

Redistribute your credit usage by transferring balances to other active cards.

Don’t close multiple cards at once — space them out to protect your credit utilisation and account age.

Keep older cards active if possible, as long-standing accounts boost your credit profile.

Check your credit report after cancellation to make sure everything is updated correctly.

Redeem any remaining reward points or benefits before closing the card.

By following these simple steps, you can manage your credit cards smartly and avoid unnecessary damage to your credit score.

Final Word

Disclaimer: This article is meant to create awareness about managing credit cards and their impact on your credit health. Remember — while credit can be helpful, it comes with risks like high interest rates and hidden charges. Always consult a financial expert before making decisions about loans or credit cards.