When should you close your credit card?

July 24, 2014 . FundsIndia Desk

This article is a contribution towards our financial literacy series. It has been written by a specialist in credit and debt counseling – Satish Mehta, Founder and Director of

cutcard2Do you feel that you have too many credit cards? Are some of them lying idle with you? The correct step is to close these credit cards. But before doing that, remember: closing your credit cards has an effect on your credit score.

It impacts the “credit utilization” ratio, i.e., credit used against the available limit. Credit utilization ratio is one of the factors based on which credit scores are calculated. Before closing that credit card, understand if it is the correct move for you.

Consider the following:

  • Are you a spendthrift: If you are a spendthrift and end up making purchases which are beyond your servicing capacity, then you should close your credit card. Although this is not the best solution to the problem, it definitely will ensure that you do not fall into a debt trap. It also reduces your options of shopping around randomly without having a genuine need.
  • High fees: If your credit card has high annual fees, then you should repay your balance and close your credit card. Credit card issuing companies do offer cards with “zero” annual fees for the initial 1-2 years. These are steps to lure you to buy the credit card. But if you feel that the annual fee charges are high and unfair, then you should do away with the card.
  • Repayment issues: If you have only been repaying the minimum amount due on your credit cards, or if you frequently end up making late payments, then it is time to close your credit card.
  • Balance transfer: If you have opted for a balance transfer, then it might be a good move to close that high interest credit card. The fact that you have opted for a balance transfer indicates your inability to service the card.

Besides the above-mentioned reasons, if high fees, high interest rates, zero loyalty programs or a strain in repaying monthly dues are pestering you, then it is time to close your credit card.


Satish Mehta is the Founder and Director of – a credit and debt counselling company that provides end to end customized counselling to individuals by handholding them through their credit life cycle.

Get FundsIndia’s articles delivered straight to your inbox!

Enter your email address to get:

  • Mutual fund recommendations from experts
  • Buy, hold or sell calls for stocks
  • Investment tips and tricks
  • All the latest news from

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.