Cancelling a credit card or closing an account can hurt credit scores

Many individuals with bad credit history are trying to improve their credit by making smart financial decisions, but not every factor that comprises a credit score is necessarily easy to understand or alter.

Many people think closing an account or credit card that they rarely or never use is beneficial to their credit score, but according to MSN, such a decision may actually be damaging. Credit scores are dependent on the ratio of a consumer’s total balance to his available credit, otherwise known as a utilization rate.

When an unused card or account is closed, the consumer’s available credit drops while his balance remains the same. When a consumer is using a larger portion of his available credit, he may appear more risky to lenders, and his credit score may drop.

Consumers with bad credit history can make a sound financial decision by not opening any new accounts they will not use, but closing them once they are already open may be damaging to one’s credit score.

Related Post