Deciding whether to close paid off accounts

Dear Experian,

I have four accounts that have a limit of $300 each. I have had these accounts for years. I would like to know if I should close them once I pay them off. I am concerned that having credit cards with low credit limits is negatively affecting me.



Dear JLD,

From a credit scoring standpoint, it is better to keep the accounts open. Your credit limits might have a small impact on your credit scores, but your overall utilization rate is much more important.

To calculate your utilization rate, you simply add up all of your balances and all of your credit limits and divide. When you close an account, you lose some of your available credit, which will make any balances a greater percentage of your total available credit and increase your utilization rate. An increase in the utilization rate is a sign of risk and hurts credit scores.

Rather than close the accounts, make small charges occasionally and pay the balance in full. Generally, lenders will increase your credit limit over time as you demonstrate that you manage the account responsibly.

To find out exactly what is affecting your credit scores, get a copy of your credit report and purchase a score. If you are trying to track your improvement over time, you might consider subscribing to a credit monitoring services like Experian’s Credit Tracker.

Credit Tracker provides unlimited access to your credit report and credit score, email alerts about changes to your report, and information about what you need to address to improve your credit scores.

Whether you purchase an individual score or subscribe to a credit monitoring service, you will receive a list of factors that are most affecting your credit scores. If credit limits are a factor, you’ll see it right away. If credit limits aren’t listed, you should focus on the issues that are identified in the factors.

Time and patience are the real keys to building a strong credit history that will be reflected in good credit scores.

Thanks for asking.

- The “Ask Experian” team