Will closing a credit card affect your credit score?

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The short answer is that it depends on which credit card you close. As long as you don’t close your credit cards with the highest credit limits or the ones you’ve had the longest, your credit score shouldn’t be impacted. 

Here’s the full explanation. Your credit score is comprised of 5 factors: 

  1. Payment History (35%)
  2. Total Amount Owed (30%)
  3. Length of Credit History (15%)
  4. Types of Credit (10%)
  5. New Credit (10%)

When you close a credit card, it can affect numbers (2) and (3). 

The first way closing a credit card can affect your credit score is by increasing your Total Amount Owed (#2).  

If you have two credit cards with limits of $5,000, where your balance is $2,500, and one credit card with a limit of $10,000 and no balance, your “credit utilization ratio” is only $5,000 out of $20,000, or 25%. That’s pretty good. 

But, if you close the credit card with the high limit and no balance, all of the sudden your credit utilization ratio doubles to $5,000 out of $10,000, or 50%. That’s much worse and could lower your credit score.

The other way closing a credit card can affect your credit score is by lowering your Length of Credit History (#3). 

This is pretty similar. If you’ve had two cards for 1 year each, and one card for 4 years, your average is 2 years (1+1+4 = 6, divided by 3 =2). 

But, if you close the credit card you’ve had for 4 years, now your average is only 1 year. That’s much worse and it could lower your credit score. 

So, if you keep your credit cards with the highest credit limits and that you’ve had the longest, closing a credit card shouldn’t negatively impact your credit score.

For more tips and information on personal finances, please visit www.Crediverso.com

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