To keep the credit score better, many users are being cautious in their financial decisions. In such a situation, the decision to close old credit accounts is a serious matter, which can affect your credit history and score. Many people are unaware that closing old accounts can hurt their credit score, so let's know about it in detail today.

Effect on credit history

When a person closes an old credit card or personal loan account, he also closes the record of continuous payment of his credit history. One of the most important factors in calculating the credit score is how many times and for how long you have paid your loan on time. Maintaining consistently good credit behavior over a long period strengthens your credit score, making it easier to get a loan in the future. If you keep your old accounts open, it contributes positively to your credit report and shows your credibility to lenders.

Why is closing a credit card harmful?

If a person closes his old credit account, his total available credit limit is reduced. If the spending pattern remains the same, the credit utilization ratio may increase, which can negatively impact the credit score. Experts recommend that this ratio should be less than 30%. For example, if your credit limit is ₹1,00,000, your credit utilization amount should not exceed ₹30,000.

Temporary drop in credit score

In many cases, closing old accounts can lead to a temporary drop in the credit score. This is because it reduces the average age of your accounts, thereby weakening the credit history. Also, if many new accounts have been opened recently, it may indicate that the person is financially unstable, which may reduce the confidence of lenders.

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