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Closing Credit Cards and your Credit Score

Before making a decision to close that credit card account you do not use anymore that is just sitting open on your credit report, consider what it could do to your score. 

Length of Credit History

The length of your credit history makes up about 15% of your credit score. This 15% takes into account the length of time you have had credit and looks at the dates you opened the accounts.  Closing those old credit card accounts can lower your score by eliminating a history you may need.

Credit Utilization Ratio

Furthermore, your credit utilization ratio can be affected by closing an old account.  Credit utilization ratio is how much debt you owe compared to your total available credit limit.  So that old credit card account parked on your report with a positive credit history may actually be helping to boost your credit score.  Experts say that you should aim to only utilize about 10% or less of the credit you are given, meaning an old card with a zero balance increases your available credit limit. 

Types of Credit

Before deciding whether or not to close a credit card account, first, make sure it is not your only account. Part of your credit score takes into account several different types of credit.  You need to diversify yourself to keep a good credit score.  Second, try not to close a credit card with a balance, but if you must, make sure to pay off the balance as quickly as possible.  Closing a credit card with a balance, reduces your credit limit to zero, which increases your debt to credit ratio and in turn can drastically affect your credit score

Keep Your Positive Credit Cards Open

As a general rule of thumb, when making a decision on whether or not to close a credit card, accounts with a lengthy history of positive, timely payments should remain open, assuming the card does not carry a fee or have an existing unpaid balance.  On the contrary, if the account has a high balance and large interest fee, it may be in your best interests to close the account and transfer to balance to a card with a lower interest rate, making it easier for you to pay down your debt.

Bottom line, weigh your options before closing your card. 

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If you are in need of legal advice or assistance, contact SmithMarco P.C. for a completely free case review.

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