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Credit Card Myths: Termination Leads To Loans

By George Hauser
Published: Thursday, March 11th, 2010

A credit score is defined as a numerical expression that is bassed on a person’s credit fees, credit scores are the ones that would define the possibility of a person who get admitted for future loans. People are often looking for ways to making their credit scores look better so that they would continue getting loans for things they would need but couldn’t afford at that time.

There are four myths when it comes to keeping your credit score. One of these myths is the belief of closing your account your account in order to help your credit score. This is an absolutely myth, meaning untrue and completely unapplicable. The termination of an account will not actually help your credit score but can actually damage it.

Mortage tellers will tell you that having too many accounts will give you difficulites in applying for loans but closing them won’t help you either. This happens bacause a credit score includes the difference between a person’s available credit and the credit they are about to use. Your terminated accounts plus the total available credit makes your balance become bigger and thus causes more damage to your credit score.

A person’s credit score records the length of your credit history. If you shut down older accounts, they can make your current accounts look younger and more active that it actually it is, this event can also damage your credit score. However, if you stop using old accounts, issuers may also stop updating your old accounts at the credit bureaus. Old accounts will still appear but they aren’t given as much weight in the credit-scoring formula compared to your active accounts. So choose to charge things that are less costly to your old accounts every now and then and pay them in full once a statement arrives.

You should also remember that your credit score will only be one of the things that lenders will look into, they also evaluate a person’s income, assets, employment history and credit limilts. Though closing accounts tend to damage you credit score, mortage loaners will sometimes request that you close a few of them in order to get a loan, this is of course after they’ve gone through your history.

If your goal in the first place is to improve your credit score, you generally shouldn’t close accounts in advance, instead the better way of getting loans is by paying down your debt. Paying off the installment for mortage, auto, student and other loans will help your scores. Lenders are more likely to favor seeing a large gap between the amount of credit that a person uses and the available credit limits. A balance below 30% of the person’s credit limit on each card will surely help their credit score.

Although the most ideal thing would be for people to pay them off completely or paying the highest-rate card first, the better strategy would instead for people to pay down the credit cards they own that are close to the card’s limit.

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