Curated By: Business Desk
Last Updated: November 09, 2023, 17:38 IST
![You should close the card if the credit utilisation ratio is more than 30%. You should close the card if the credit utilisation ratio is more than 30%.](https://images.news18.com/ibnlive/uploads/2021/07/1627283897_news18_logo-1200x800.jpg?impolicy=website&width=510&height=356)
You should close the card if the credit utilisation ratio is more than 30%.
Using the credit card too much or not using it at all can both lower your credit score.
People often think that not using their credit cards would help in maintaining a good CIBIL score. However, the consequences are the complete opposite as this can impact your credit score significantly. Having a credit card has become very common these days. People now make payments with credit cards due to attractive features, cashback and discounts. Using a credit card has a host of other benefits as you can make credit purchases without any interest for a month. The amount of credit you get depends on your salary, typically being three to four times more than your in-hand salary. This can be beneficial for emergency needs when your salary falls short.
However, if you use the card recklessly, you can get into trouble and fall into a debt trap, as the interest after the due date can be very high. But not using it at all can also be problematic. Using your credit card can help in maintaining a good credit score while if you choose to not avail of these services, you land in serious trouble as it might impact your credit score negatively. Let us see what happens if you don’t use your credit card for long.
If you don’t pay any credit bills, you may not face a penalty, but if your card remains inactive for a long time, the company may close it. The duration of inactivity before your card is closed depends on the issuing institution. Also, whether you receive any notice before the card is closed depends on the card issuer since they are not obligated to do so. In a common scenario, it won’t have any impact on the customer, but those with low credit limits may face issues as their credit score will be affected.
Using the card too much or not using it at all can both lower your credit score. When a credit card is closed, the cardholder’s credit limit can decrease by up to 30 per cent. In addition, this will affect the loans you take in the future as there is a decrease in the chances of getting a loan application accepted.
When Should You Close a Credit Card?
If any of the three situations mentioned below apply to you, you can consider closing your credit card.
● It’s your oldest credit card, and you have other credit cards now.
● Your credit utilisation ratio is more than 30 per cent.
● You don’t see any clear incentive for keeping the card.
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