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Should I close my account once I transfer the balance to a new card?
Closing a credit card account can negatively impact credit scores, so you may find it's best to keep your old credit card open even after your balance transfer has been completed and the balance on your old account is zero.
Why Does Closing a Credit Card Account I No Longer Use Affect My Scores?
When you close a credit card account, you lose the available credit on that account, which will likely increase your overall credit utilization rate.
Your utilization rate, which is sometimes referred to as your balance-to-limit ratio, is the second most important factor in your credit scores. It is calculated by adding up all your credit card balances and then dividing that number by the total of all your credit limits. Depending on the amount of the balance that was transferred and the credit limits and balances on any other accounts you have, eliminating that credit limit may cause your utilization rate to increase significantly. Although every lender has different criteria, high utilization rates are often viewed by lenders as a sign of credit risk.
In general, utilization rates below 10% are best for credit scores, while a utilization rate above 30% can have a substantially negative impact on scores.
How Do I Keep My Utilization Rate Low?
One way to keep your utilization rate low is to avoid charging more than you can afford to repay right away. Ideally, you should pay your credit card balance in full each month. Doing so will help you avoid accumulating debt and spending your hard-earned money on interest fees.
Keep in mind that lenders typically update the balances on their accounts at the end of each billing cycle, so the balance reflected on your credit card statement will often be what you see listed on your credit report, even if you paid the balance off once you got the bill.
What Are Some Tips for Improving My Scores?
The most important thing you can do for your credit scores is to ensure all payments are made on time. Payment history is the top factor in calculating credit scores. If you're trying to improve your scores, here are some steps to consider:
- Make sure all accounts are current. If you have any accounts that are currently past due, bringing them current is key to improving your credit situation.
- Pay off outstanding collection accounts. Even though a paid collection account may still appear on your credit report, many scoring models exclude collection accounts from the score calculation once they are paid off, which means doing so may help your scores improve right away.
- Make all payments on time going forward. If you've had delinquencies in the past, making sure all payments are on time going forward is the best way to help your scores recover. Late payments remain in your credit history for seven years, but the longer ago a delinquency occurred, the less it will affect you.
- Reduce your credit card balances. As mentioned above, having a high balance-to-limit ratio can hurt your scores. Paying down or paying off revolving account balances will often help credit scores improve.
- Get your free credit score. If you are unsure how to begin improving your credit, order your free credit score from Experian. You will receive a list of the risk factors that are currently impacting you the most, so you'll know where to focus your efforts.
- Sign up For Experian Boost®ø. With Experian Boost, you can add your on-time utility, cellphone and streaming service bills—and even your eligible monthly rent payments—to your credit report.
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Jennifer White, Consumer Education Specialist