Closing an account can affect your credit and make your credit scores temporarily drop.
When you close an account, you lose the available credit limit on that account, which makes your utilization rate increase. It’s simply a matter of math.
Your utilization rate is your balance-to-credit limit ratio. If you close one account and still have balances on other cards, those balances now make up a greater percentage of your total available credit limit. To calculate your utilization rate, divide the total of all your balances by the total of all your credit limits. Your balances should never be more than 30 percent of your credit limits.
Although your scores may decrease initially when you close an account, they typically rebound in a few months if you continue to make your payments as agreed, assuming everything else in your credit history remains positive.
If you are planning to apply for credit in the next three to six months, especially for a major purchase such as a home or car, you should use caution in closing accounts. Generally, it’s best to keep your credit history stable until you’ve completed that credit transaction. You can find more information on closing credit cards on the Ask Experian blog.
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Scoped on: 3/30/2017