Your Financial Report Card
Think of your CIBIL score as a financial report card that tells lenders how reliable you are with credit. This three-digit number, ranging from 300 to 900, is calculated by TransUnion CIBIL based on your borrowing and repayment history. A score of 750
or higher is generally considered excellent and can unlock better loan terms and faster approvals. For anyone in their 20s dreaming of a future car loan, home loan, or even funding a business, a high CIBIL score is a golden ticket. Your payment history is the most important factor, but other elements play a crucial role.
The Power of a Long History
One of the key factors in your score is the length of your credit history. Lenders like to see a long, consistent track record of responsible borrowing. An old credit account, even one you barely use, acts as proof of your long-term reliability. When you close your oldest credit card, the average age of all your accounts drops. While a closed account can stay on your report for up to 10 years, it stops aging, and its eventual removal can shorten your credit history, potentially lowering your score. That first card you got is an asset; it anchors your credit history and shows you've been in the credit game for a while.
The Credit Utilisation Trap
Another major component of your CIBIL score is your Credit Utilisation Ratio (CUR). This is the percentage of your total available credit that you are currently using. For example, if you have two credit cards with a combined limit of ₹1,00,000 and you've spent ₹20,000, your CUR is 20%. Financial experts recommend keeping this ratio below 30%. A high CUR suggests you might be overly dependent on credit, which can be a red flag for lenders. When you close an old credit card, you don't just lose the card; you lose its credit limit. Your total available credit shrinks, so even if your spending stays the same, your CUR automatically spikes, which can hurt your score.
A Healthy Mix Matters
Lenders also favour a healthy mix of credit types, such as secured loans (like an auto loan) and unsecured loans (like credit cards and personal loans). While not as heavily weighted as payment history or CUR, showing you can responsibly manage different kinds of debt adds a positive note to your credit profile. Closing a credit card can alter this mix, especially if you have very few credit accounts to begin with. Keeping that older card, alongside any other credit products you may acquire, helps demonstrate this versatility.
How to Manage Old Accounts Wisely
Simply keeping the account open isn't enough; you need to manage it. If the card has no annual fee, the best strategy is to use it for a small, recurring purchase once every few months—like a streaming subscription or a utility bill payment—and set up an auto-payment to clear the balance in full. This keeps the account active and continuously reports positive payment history to CIBIL. If the card has a high annual fee, call your bank before closing it. Ask if they can switch you to a zero-fee version of the card. This often allows you to retain the account history and credit limit without the cost.
