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Credit Score Advice – Closing credit cards positively impacts credit score

By Brian Anderson
Published: Sunday, April 4th, 2010

The credit score is affected by a number of factors. Closing a credit card is one of those factors. People use this tactic of closing credit cards with the assumption that it will help improve their credit score, but this tactic actually backfires. We shall now go about trying to understand why this happens.

Firstly, the reason why a person usually closes a credit card is because he or she might have a huge outstanding balance and is hoping that it will not show up on the credit score once it is closed. But this is not the case.

When you close a credit card, it still reflects on the credit report if there is an outstanding debt. The only way it will not show up is if it is completely cleared.

But even then, there are a number of repercussions. We shall now list each of these so that we can understand what might happen.

The age of your credit history is weighed as a factor in the credit score. The older your credit card the more valuable it is. It is true that it will still remain on your report for ten years after closing, but after those ten years you will see a sudden drop in the score. This is because the ages of your accounts have been lowered.

Secondly, do not ever close a credit card when it is the only one which has available credit. If you have maxed out on all other credit cards and this is the only utilizable one, it is only obvious that you should keep it. Else, the report will show that you have utilized all your cards to their maximum limits.

Thirdly, never close your only credit card. This will affect the mix of your credits. Remember, 10% of your score depends on the different types of credit accounts that you hold, the more the variety the better. Closing your only credit card will hamper your prospects on this category.

Then lastly, it only makes sense to hold on to the one card which has the best terms. Like the interest rate, the borrowing limit or other redeemable points etc. this is in no way connected to your score, but it is common sense to keep such cards as you might not be able to get similar deals in the future.

And again, let me reiterate the importance of not closing a card which has an outstanding balance. The problem is that when you close it, your borrowing limit will go to zero, but the amount you still owe will remain. This will show a negative balance and this will definitely have a very adverse impact on your score.

If one goes about following all these tips to the dot, you should definitely not have any problems with keeping a good score. Remember, a good score is the one thing which will decide how easily you can get a loan, how much you have to pay for it and how much credit you can get. It is your money; invest wisely by learning about your credit score.

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