Why closing old accounts can damage your credit score
If you’re trying to get a handle on your finances and dig your way out of a bad credit score, getting your accounts in order is essential. You need to know what, and where, credit is available to you, but while it might be tempting to pay down and close old accounts, this could actually damage a credit score.
Rebuilding your credit score can be difficult, especially if you are starting near rock bottom. You’re stuck in a Catch 22 situation – new credit is often required to increase your score, but is not available because your scores is too low to satisfy lenders.
Part of a credit score is based on credit utilization. This is the amount of debt you have compared to your overall credit limit. Each time you close an account, you are reducing the amount of credit available to you and raising your utilization score.
Also, older accounts often carry more positive weight with credit providers, so getting rid of them will remove even more beneficial history. It can soon begin to damage your credit score, even though you may believe that you are doing the right thing.
To achieve success, focus on reducing your balances to show you can manage your debt responsibly, and keep your accounts open. This will help to satisfy lenders about your credibility, thereby increasing your credit score and your access to finance.
You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
This article was provided by our partners at moneytips.com.
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