I would like to clean up my credit, but want to know if it is beneficial to close revolving credit accounts that I am not using or will never use again or if I should leave them open. I have never missed a payment on multiple accounts and usually pay more than the minimum payment due. However, I was recently denied increases in limits as well as declined for new accounts. The reason given was "the amount of revolving balances on credit report is too high."
It is good to hear that you are working on improving your credit. If you were declined credit because your revolving balances are too high, you should focus on reducing those balances instead of opening or closing accounts. Closing existing credit card accounts could actually hurt your credit scores.
Revolving Account Balances Impact Your Utilization Rate
In addition to how much you owe, one of the most important factors in credit scores is how close your credit card balances are to your credit limits. If you close some credit cards, you lose those open credit limits and your overall balance-to-limit ratio, also called your utilization rate, will go up even more.
Credit score experts say you should keep your utilization rate below 30 percent, and below 10 percent is even better. The lower your utilization, the better for your scores.
Keep Credit Card Balances Low
The only way to remedy the amount of revolving balances being too high is to pay them down. Closing open accounts or lowering your limits on existing accounts would likely harm your credit scores by leaving you with less available credit.
Keeping your credit cards open and active is good for your credit. Ideally, you should pay off your balances completely and then continue to use your credit cards for routine expenses which you can pay in full each month. That way you add lots of positive points to your scores by demonstrating that you can manage credit cards responsibly without spending more than you can afford and paying finance charges.
Adding Positive Utility Payments Can Improve Scores
Earlier this year, Experian introduced Experian Boost®ø, a free service that allows consumers to improve their FICO score instantly by signing up to have their positive utility and cell phone payments added to their credit history.
When you enroll in Experian Boost, you will have the opportunity to add on-time payments going back as far as 24 months. Once the payments have been added, you will be provided with an updated FICO score.
You can learn more about Experian Boost and sign up here.
Thanks for asking.
Jennifer White, Consumer Education Specialist