There is a lot of information about all the factors that affect a
credit score, but there may be one more that needs to be looked at. Many
consumers may have credit card debt that they transfer from different
accounts because of balance transfer deals and many other consumers open
new accounts just for the bonus points on that card. Most people
already know that opening a new credit account may negatively affect a
credit score, but some consumers are concerned that closing a new
account may cause the same damage.
The age of an account often
affects a persons credit score, with the oldest accounts showing a
positive record and benefiting the credit score and the newest accounts
damaging the credit score. So if that is the case, then what happens if
you want to close and account shortly after opening it?
answer to this pressing question is simple! Many consumers dont realize
this but our credit accounts will continue to appear as long standing
accounts on your credit score, even after theyve been closed! You
still get the value of the age of the account whether its open or
closed, active or inactive, balance or no balance, said John Ulzheimer,
the president of consumer education at SmartCredit.com. So even if you
close a brand new credit line it may still continue to earn points for
your credit score! The damage that would occur in this situation is in
opening a new account.
But there is one other factor to closing a
credit account that may affect your credit score. We discussed in our
Credit 101 article how FICO looks at the total available credit that a
consumer has and calculates how much of their credit is being used. If
the account in question had a high credit limit and a low balance, this
could severely impact the consumers credit score- in a good way! If the
account is kept open, it is more likely to help your credit score by
increasing your credit utilization rate. But you should be careful!
Always make sure that you weigh the pros and cons of keeping open an
account that is no longer in use. The account may have a high annual
fee, and if thats the case then it may be more beneficial to go ahead
and close the account. After you factor in the costs of keeping your
account open, you can more accurately determine which would be the
smarter financial move.
Keep in mind that consumers who have very
positive credit scores usually use less than ten percent of their total
available credit limits at any given time. And even if you dont feel
like you need the help of this card to bolster your credit utilization
rate, think again. Even if you dont need to build your credit score
right now, the sudden loss of available credit when you close an account
could mean bad news for your credit score.
Also be sure to keep
in mind that eventually closed accounts will disappear. Closed accounts
are taken away from your credit score ten years after having been
closed. This means that you may want to strategically close your
accounts to get the best possible credit score. Waiting until you have a few other open accounts where the credit utilization rate is not so high may be a good idea. That way the sudden loss of available credit may not affect your score too harshly.
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