Do You Own an Unused Credit Card? Here’s What to Consider Before Closing It
Credit Card- Do you have a credit card that you rarely use? If so, you might be wondering whether it’s better to close the account or keep it open until the right time. Before making a decision, it’s important to understand how closing a credit card can affect your financial profile.
The choice to discontinue a credit card isn’t as straightforward as it may seem. It depends on several factors that work together to impact your credit score and financial flexibility. For instance, closing a card reduces your overall credit limit, which can influence your credit utilisation ratio. This ratio plays a key role in determining your creditworthiness.
Another important point to keep in mind is the potential value of a credit card during unexpected emergencies. Even if you aren’t actively using it, having an available credit line can provide a useful safety net—as long as the annual fees are reasonable.
Additionally, many credit cards come with valuable perks such as discounts, airport lounge access, special events, and exclusive memberships. In such cases, it may be more beneficial to keep the card open to continue enjoying these advantages.
Four Key Factors to Consider Before Closing Your Credit Card
1. Credit Score Impact
One of the most significant effects of closing a credit card is on your credit score, particularly through your credit utilisation ratio (CUR). This ratio measures how much credit you’re using compared to your total credit limit. A lower CUR is generally better for your credit score, ideally staying under 30 to 40 percent.
For example, if you have a total credit limit of ₹10 lakh across two cards of ₹5 lakh each, and you’ve used ₹4 lakh, your CUR stands at 40 percent. If you close one of these cards, your total credit limit drops to ₹5 lakh. This pushes your CUR up to 80 percent, which could negatively impact your credit score.
2. Emergency Preparedness
Even if you don’t use the card regularly, it can serve as a valuable backup in emergencies. Unexpected expenses or financial shortfalls can happen at any time, and having an available credit line can be a crucial resource. Keeping the card active ensures you have this option when needed.
3. Annual Fees
Another factor to weigh is the cost of keeping the card open. If your unused credit card has a low or zero annual fee, it may be worthwhile to keep it. However, if the annual fee is high and the card doesn’t provide sufficient value in return, closing it could be the better choice.
4. Rewards and Special Benefits
Many credit cards offer benefits beyond spending power. These might include reward points, cashback, discounts, access to airport lounges, and invitations to exclusive events. If your card provides such perks, keeping it open may help you maximize these rewards—even if you use the card sparingly.
The Bottom Line
Closing a credit card isn’t just about reducing clutter in your wallet. It’s a decision that can affect your credit score, financial flexibility, and access to valuable perks. Before you decide, consider these four key factors to ensure you’re making the choice that best supports your financial goals.
