I have some unused credit cards. Will this affect my CIBIL score?
Creating a well-balanced Credit Card portfolio and maintaining it is essential for your Credit Score. If you want to apply for another Credit Card or a loan in future, the lender is most likely to judge your creditworthiness based on your Credit Score. That’s when having a diverse range of Credit Cards can work in your favour. Since the main aim here is to increase the total available credit, all those unused cards can help too. The only thing you need to worry about is the duration for which the cards remain inactive. If they remain inactive for long, your credit history might get affected in a negative way.
How? Your Credit Score depends a lot on your credit utilisation ratio. That basically stands for the percentage of available credit you use each month. If you don’t use your card for a long time, the issuer might assume that it’s an inactive account and close it. The duration after which the issuer decides to do this varies from company to company. Legally speaking, the Credit Card issuer isn’t required to keep you informed about the status of your Credit Card. An inactive account is enough for them to close it without any notice. As the total available credit in your name decreases, your Credit Score gets affected as well.
It’s not merely about your credit utilisation ratio, your Credit Score also depends on the length of your credit history. For instance, let’s assume that you have held a card for a long time, but it has remained inactive for most of the duration. Now the issuer decides to close it since it’s been inactive for quite some time. Since it is your oldest account, once it gets closed, you will lose out on the benefits of your history and your Credit Score will fall, as well. Closing your oldest Credit Card, therefore, isn’t the best option.