Why closing a credit card can hurt your credit scores


Dear Experian,

Why does closing a credit card you are no longer using negatively affect your credit?



Dear VNO,

Closing an account causes your overall utilization rate to increase. As a result, your credit scores my decrease.

Your utilization rate is also called your balance-to-limit ratio. To calculate it, add up all of your credit card balances and then add up all of your credit limits. Divide the total balances by the total limits.

When you close an account it causes your total balances to be a higher percentage of your total credit limits, which is a sign of risk.

Generally, the lower your utilization rate, the better.

If you are planning to make a major credit purchase in the next three to six months and you don’t have excellent scores, it’s best to leave the account open. However, while your credit scores will likely be impacted for a time, it still might be a good idea to close the account if you are not planning to apply for credit.

Your credit scores should not be the only factor in your decision. If you are having difficulty managing debt you already owe and are tempted to use the card, consider closing it so that you won’t take on more debt. And, a good way to off-set the impact of closing the account is to pay down the balances on your remaining cards.

A good way to get an idea of what is contributing to your credit score is to purchase your Vantage score. It is a small investment that will help you understand how lenders would likely view your credit risk. The score will come with a list of factors that explain what from your credit report is currently affecting your credit score.

The factors are the key to unlocking what you need to do to improve your creditworthiness over time, which will be reflected in better credit scores.

Order your score online at http://www.experian.com/consumer-products/vantage-score.html.

Thanks for asking.

The “Ask Experian” team

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