Industry Odisha Bureau, Sep 26: Closing an unused credit card cuts your available credit. With the same outstanding balance, credit utilisation rises. That can affect your credit score, so weigh fees and benefits first.
A credit card you never use can still shape your credit profile. Its credit limit counts towards the total credit available to you.
Close it, and that limit disappears. Your debt stays the same, but your borrowing headroom shrinks. That shift can push up your credit utilisation ratio. It can also influence how lenders view you.
Before cancelling, borrowers should weigh fees, benefits and spending habits.
How Credit Utilisation Rises After Card Closure
Credit utilisation is the share of available credit you are currently using.
Consider a borrower with a combined credit limit of ₹5 lakh. Their total outstanding balance is ₹1 lakh. That puts credit utilisation at 20%.
Now suppose they close a card carrying a ₹2 lakh limit. Total available credit falls to ₹3 lakh. The outstanding balance remains ₹1 lakh. Utilisation, however, jumps to 33.3%.
The borrower owes nothing extra. The ratio rises only because the credit limit has shrunk.
The 30% Credit Utilisation Rule Needs Context
Lenders and credit-scoring models generally favour lower utilisation. A 30% level is often cited as a rule of thumb.
It is not a rigid cut-off. No universal threshold guarantees a particular credit score. Still, closure can lift utilisation above that commonly cited mark.
When Keeping a Credit Card Can Help
Retaining an unused card often makes sense when it carries no annual fee. It preserves available credit and keeps utilisation lower.
Account age can matter too. Raj P Narayanam, executive chairman of Zaggle, flagged the risk of closing an oldest card. He said doing so shortens credit history, a key scoring factor. He suggested a small transaction every few months, repaid in full.
Adhil Shetty, CEO of BankBazaar, also favours retention in many cases. Unless annual fees are high, he said, minor responsible use can help. It can maintain credit history and support long-term borrowing capacity.
Keeping a card active does not require carrying debt.
Annual Fee Worries Have Alternatives
A costly annual fee need not force a cancellation. Cardholders could ask the issuer for a fee waiver. Another option is moving to a lifetime-free variant, where available. Neither option is guaranteed by every issuer.
When Closing a Credit Card Still Makes Sense
Retention is not always the better choice. Closure may be worth considering if the annual fee is high. Weak or negligible benefits are another reason to reassess a card. So is the risk of overspending.
For some borrowers, an extra card simply invites extra debt. In such cases, discipline may matter more than a lower ratio.
Before deciding, check other card limits and your outstanding balance.
Blocking a Card Is Not Closing It
Blocking or deactivating a credit card does not close the account. Closure ends the relationship with the card issuer entirely.
All dues must be settled first. Once they are, the issuer must honour a closure request within seven working days.
Weighing the Credit Card Trade-Off
An unused card should be neither kept nor cut by default. The right call depends on its fees, benefits and credit limit. Your outstanding balance, account age and spending discipline matter as well.
Judge the card by its role in your wider credit profile.
