Closing old credit accounts can, to some extent, affect your CIBIL score positively or adversely based on an interplay of factors. However, the impact on credit score hinges on a slew of factors.
These factors are as follows:
Credit utilisation ratio: Closing old credit accounts can affect your credit utilisation ratio, which is the amount of credit you’re using compared to the total credit available to you.
If you close an old credit account with a high credit limit and you carry balances on other accounts, your credit utilisation ratio may increase, which could negatively impact your CIBIL score.
Length of credit history: The age of your credit accounts is an important factor in determining your credit score. Closing old credit accounts can shorten your average account age, which may slightly lower your score, especially if you don’t have many other accounts with a long credit history.
ALSO READ: Have poor credit score? Here are 7 simple steps to improve it
Credit mix: Closing an old credit account could also affect your credit mix, especially if it’s your only account of a certain type (e.g., your only credit card). Having a diverse mix of credit types can positively impact your credit score, so closing an old account might reduce that diversity.
Payment history: Closing old credit accounts won’t directly impact your payment history, which is a significant factor in your CIBIL score. However, if you have any outstanding balances on the account you’re closing, it’s crucial to pay them off to maintain a positive payment history.
Closing old credit accounts can potentially impact your CIBIL score, particularly if it affects your credit utilisation ratio, credit mix, or average account age. It’s essential to consider these factors before closing any credit accounts and to manage your credit responsibly to maintain a healthy credit score.
Additionally, regularly checking your credit report can help you monitor any changes and take steps to mitigate any negative impacts on your score.
Frequently Asked Questions:
How does closing old credit accounts impact your credit score?
Closing old credit account impacts your credit score based on an array of factors such as credit utilisation ratio, length of credit history, payment history and credit mix.
What is credit utilisation ratio?
It is the amount of credit you’re using compared to the total credit available to you.
How does closing old credit account affect your credit utilisation ratio?
If you close an old credit account with a high credit limit and you carry balances on other accounts, your credit utilisation ratio may increase, which could negatively impact your CIBIL score.
How does the age of credit account impact credit score?
The age of your credit accounts is an important factor in determining your credit score. Closing old credit accounts can shorten your average account age, which may slightly lower your score.
Does the credit mix impact your credit score?
If you happen to close an old credit account, it could affect your credit mix, especially if it’s your only account of a certain type. Having a diverse mix of credit types can positively impact your credit score.
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Published: 13 Mar 2024, 05:22 PM IST