Did you know that closing your old credit accounts might cause a decrease in your credit score? Many people do not and are surprised when they go to obtain additional credit or loans and find that their credit score is much lower than they expect. Closing old credit accounts can affect your credit score in several different ways and it can be difficult to return your credit score to its previous levels after closing these accounts.
Available Credit Ratio
Closing old credit accounts will affect your available credit ratio negatively by reducing the amount of your available credit without reducing the amount of the credit that you are using. The calculation of your credit score includes information about the amount of credit that you have available versus the amount of that credit limit that you are using at any given time, with ratios of less than 30% commanding the highest credit scores. If you have a credit account that has a high balance, it is better to leave the account open and unused than to close the account and ruin your available credit ratio.
Length Of Credit History
Closing an old credit account can also affect the length of your credit history. Credit score calculations take into account the length of time that each credit account has been held and older accounts are more highly valued than new accounts. If you close an older account because you are using a new account with better terms or a lower interest rate, you may find your rates increased for credit accounts opened in the future.
How To Keep Your Credit Score High
Keeping your credit score as high as possible is very important to securing your financial future. In order to keep your credit score in the acceptable to excellent range, you should make sure to take steps to increase your credit score while avoiding actions that can result in a credit score decrease.
Making sure that all of your bills are paid on time is the first thing that you can do to keep your credit score at the highest level possible. Using less than 30% of your available credit and keeping your credit accounts open and in good standing for as long as possible are also techniques that increase your credit worthiness significantly. Performing these actions and preventing default on any of your accounts will ensure that your credit score stays high and your interest rates stay low.