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Should You 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.

– JLD

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.

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

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