Find Out the Pros and Cons of Closing a Credit Card

Know More
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
At your request, you are being re-directed to a third party site - https://www.billdesk.com/pgmerc/kotakcard/ wherein you can make your payment from a different bank account. Kotak Cards does not guarantee or warrant the accuracy or completeness of the information, materials, services or the reliability of any service, advice, opinion statement or other information displayed or distributed on the third party site. You shall access this site solely for purposes of payment of your bills and you understand and acknowledge that availing of any services offered on the site or any reliance on any opinion, advice, statement, memorandum, or information available on the site shall be at your sole risk. Kotak Cards and its affiliates, subsidiaries, employees, officers, directors and agents, expressly disclaim any liability for any deficiency in the services offered by BilIDesk whose site you are about to access. Neither Kotak Cards nor any of its affiliates nor their directors, officers and employees will be liable to or have any responsibility of any kind for any loss that you incur in the event of any deficiency in the services of BiIIDesk to whom the site belongs, failure or disruption of the site of BilIDesk, or resulting from the act or omission of any other party involved in making this site or the data contained therein available to you, or from any other cause relating to your access to, inability to access, or use of the site or these materials.
Note: Available in select banks only. Kotak Cards reserves the right to add/delete banks without prior notice. © Kotak Mahindra Bank. All rights reserved
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
04 OCTOBER, 2021
Credit cards are the best way to tide over a short-term financial crisis. When you apply for a credit card, you get assigned a credit limit by your bank based on your credit score, which you can use to purchase goods and services. However, you may not use a credit card forever. Your requirements may change along the way, due to which you may have to switch to another one that best serves your needs.
If you are closing your old credit card, it would be wise to know the advantages and disadvantages before doing it. This way, you will have a clear idea of how it will work out for you.
Advantages of Closing an Old Credit Card
If you have a credit card that is no more in use, here are the benefits that you can avail of by closing it down:
When you apply for a credit card, it comes with an annual fee which you will have to pay every year. Generally, it ranges between Rs. 1000 to Rs. 1500 depending on the type of card you have. However, if you are closing your credit card, you will no longer have to worry about paying an annual fee.
Most people with low credit scores apply for a secured credit card. It is easy to get approved for and can help in building a credit score. To get a secured credit card, you will need to deposit a certain amount with your bank. So, if you want to switch to an unsecured credit card, you will have to close your secured card. By closing down your secured credit card account, your bank will return your deposit.
At times, some people get tempted to use a credit card to purchase unnecessary things. But, the downside is that you may end up in a debt that is difficult to pay off. That is why banks advise their customer to use their credit cards wisely.
Leaving your credit card account open that is no longer in use is not a wise decision. You will have to regularly manage it. But, if you do not use it for a long time, your bank will close your credit card. You will have to ensure it is active by making small purchases on it periodically and pay off your bills on time.
Disadvantages of closing an old credit card
Closing your credit card account comes with certain disadvantages that you will have to be mindful of:
When you apply for a credit card, the bank checks your credit score, which is generally determined by your credit history, length of credit history, credit utilization, etc. When you close your credit card, it reduces the average age of your credit history, therefore harming your credit score. If you wish to maintain a healthy credit score, you will have to keep your old credit card accounts active. You will have to charge something on them periodically and ensure to make repayments on time.
It will also harm your credit utilization ratio if you chose to close down your old credit card. The credit utilization ratio is the amount of credit used against the credit available. It is one of the crucial factors that go into your credit score calculation. So, if you close your credit card account with ample credit card available, you will likely have a higher credit utilization ratio which will lower your credit score.
It is not advised to use your credit card to make purchases that you cannot afford. However, at times, you will have to borrow to meet a short-term emergency expense that you can repay on or before the due date. But, if you close your credit card account, you will have no credit to meet your financial requirements. Yes, you can apply for a new credit card, but it will take at least 10 to 15 days to get approved.
Credit card benefits include airline lounge access, purchase protection, extra miles, etc. Another con of closing your credit card account is that you will miss out on such credit card perks. Though it may not make much of a difference, you could regret your decision if your financial circumstances change in the future.
In short
So, what is the best choice for you? Should you close down your credit card account or keep it active? It generally depends on your circumstances. If your credit card is not costing you a lot of money, and you are not going to get tempted to use it for unnecessary purchases, it is better to keep it open. However, you may have to make occasional purchases with it.
You have already rated this article
OK