Summary of this article
Old cards can strengthen credit history
High annual fees may justify closure
Clear dues before closing a card
An old credit card may not get much use, but that does not make it disposable. It might still have much more use than one can think of. If it’s your oldest credit card account, closing it can affect your credit profile severely, particularly your credit history and overall credit utilisation.
However, keeping one old card active just because it carries history does not make sense when you have to carry it and pay its fees indefinitely. Before deciding what you wish to do with it, cardholders must assess its cost, credit limit, benefits and role in their overall credit portfolio.
Why Your Oldest Credit Card Matters
The age of a credit account can contribute to the depth of your credit history. A card that you have held and used for years holds the history of every timely repayment, which gives lenders a longer history of how you have handled credit. Credit bureaus such as CIBIL consider the length of credit history when it comes to assessing profiles. Hence, closing an older account can result in removing a major part of your credit history. This does not mean that every old card must remain open forever. The potential benefit of a longer credit history is that it needs to be weighed against the costs and the perks of the card.
“Average account age counts, and closing an old credit card, even one that's seldom used, can quietly shorten credit history and dent the score. Many borrowers clean up their wallets and close "unnecessary" cards without realising that the length of the file was working in their favour. This can be prevented by keeping the oldest active accounts open, even if they are only occasionally used,” says Rishabh Goel, co-founder and CEO, FixMyScore.
When Keeping An Old Card May Not Make Sense
Age alone should not justify paying huge amounts of annual fees. If an old card charges a fee for benefits you are rarely able to use, it might be worth reconsidering. For example, a card with a Rs 5,000 annual fee may offer lounge access or other rewards, but if you are unable to use these benefits, the cost of keeping the card outweighs the benefits that it offers. On the other hand, a lifetime-free credit card with a long repayment history and a useful credit limit may be easier to keep ongoing. You should consider whether the card has become difficult to manage.
If you decide to cancel the old card, you must first clear all your dues and check for any pending transactions or equated monthly installments (EMIs). After requesting closure, keep the confirmation from the issuer handy. The Reserve Bank of India requires card issuers to honour closure requests within seven working days once the outstanding amount has been paid.
