Closing Old Credit Accounts: Smart Move or CIBIL Score Disaster? 🤔

Credit Score CIBIL
1

Many people assume that closing an old credit card or loan account is a smart move to keep their finances tidy.
But what if this decision actually lowers your CIBIL score instead of boosting it?

1 Like
2

  • Length of Credit History: Since this is one key feature responsible for forming a substantial part of your CIBIL score, closing off the old accounts will lead to a reduction of the average ages of the accounts, which will cause a negative impact on your score.

  • Credit Utilization Ratio: By closing a credit account, it reduces your available credit, which in turn increases the credit utilization ratio. A higher ratio is a riskier scenario for lenders and this could diminish one’s score.

  • Diversity in Account Types: Any variation in credit types-therefore also credit scores-benefits your score. Closing down old accounts leads to a vanishing variety, leading to a decrease in scores.

  • Effect on Credit Mix and Overall Score: While the act of “cleaning up” by closing accounts may sound worthwhile, it mostly does a disservice owing to Credit Mix and Credit Utilization.

In summary, before closing any old accounts, carefully weigh the long-term impact on your CIBIL score, as maintaining a healthy credit history and low credit utilization will always work in your favor.

3

I think the credit age is one of the most important factors while deciding your credit worthiness and credit score. I would advice you not to cancel your first or oldest credit card and keep using it active.

If it is a paid card, you could probably ask for a LTF conversion as banks usually offer the same if you try to cancel a card.

1 Like
4

Yeah a lot of people think shutting down an old card or loan makes their profile cleaner but it can actually backfire. When you close an old account you lose that long credit history which is something lenders really value. It can also shrink your total credit limit which pushes up your utilization ratio if you still use other cards. Both of these can drop your CIBIL score even if you never missed a payment. Honestly it is often smarter to keep old accounts open with minimal use rather than closing them just to tidy things up.