Can Closing Credit Card Accounts Hurt Your Credit Score?

Any time you’re in over your head or you’ve had a negative experience with something, your natural response is pretty much always going to be to stay away from the cause for some time. With credit, this generally means cutting up credit cards and shutting down credit accounts. Regrettably, in terms of your credit score, this can be among the worst knee-jerk reactions you can have. On the surface, getting rid of your accounts makes a lot of sense. You’re having debt issues, so dispose of the source of the trouble and your credit problems will begin to go away. The little-known fact is that this may actually make your credit issues even worse.

Let’s look at this just a little closer. 15% of one's credit score is derived from the age of your credit cards, with older credit accounts providing you with a greater score. This section of your credit score will depend on the average age of your accounts. Due to this fact, every time you cancel older accounts, you decrease the average age of your accounts considerably and risk decreasing your credit score.

Another key to consider will be your recent credit history. The credit bureaus base their assessment of your credit worthiness on your account activity. If you close your accounts, there’s no activity for them to evaluate. This can result in a low score since they do not have current data to determine if you are a dependable borrower.

Along with your account activity and the age of your credit cards, your credit rating is also affected by your current utilization rate. Your utilization rate is your percentage of debt compared to your credit limit. Credit bureaus reward people who keep their utilization rate below 30 percent. If you close an account, there’s a good chance your rate will go up and that can directly affect your credit score.

Should you be having issues with paying a card, some options you might want to consider include relocating some of the debt evenly across other cards so you maintain your utilization rates below 30% on all cards. If you’re unable to do that, start lowering your debt and making your way towards the 30% utilization rate by making regular monthly payments. A steady history of payments will demonstrate to credit-scoring bureaus your ability to regulate your accounts and will eventually improve your credit rating score. You’ll want to pay special attention to the oldest accounts with the highest limits and lowest interest rates.

By: Phil Tirone

Article Directory: http://www.articledashboard.com

Learn more about how to fix bad credit and create a high credit score at Phil's site dedicated to giving the facts about credit scoring and personal finance.