With credit card issuers closing accounts right and left, many consumers are concerned about the effect on their credit scores. One question is about the difference between an account closed by the consumer and an account closed by the credit card issuer.
Contrary to what many believe, there is no difference. Having your card issuer close the account is not akin to a flashing sign saying that you’re not credit worthy.
However, a closed account is a detriment to your credit scores. This is because a portion of your credit score is based on the amount of credit you have available compared to the amount of credit you’re using at any given time. Closing an account reduces the amount of credit available and can cause you to be “using” far more than the recommended 30% of available credit.
In some cases, card issuers are closing accounts that carry balances and allowing consumers to continue paying off the cards at the current interest rate. They simply cannot borrow more.
For the sake of your credit report and credit scores, it may be wise to pay that account down as slowly as allowed. As long as you’re still paying, your credit line and credit use will both be reported and that credit line will appear to contribute to your available credit. You’ll need to make that decision based on the interest rate and the likelihood that you’ll need to use your credit soon.
If the closed account is an old one, it does even more damage, because the age of each of your accounts also plays a role in determining your credit scores. Thus, closing an account you’ve held for 10 years is far more damaging than closing one you just opened.
This is one reason why some experts recommend immediately closing an account if you’ve made application for a credit card with a low interest rate and instead receive a card with a high rate.
Some card issuers are closing accounts just because they can. Others have offered incentives to their customers to willingly close their accounts. While a couple hundred dollars cash seems like a good trade for an account you aren’t using, think twice about accepting the offer if you plan to use your credit in the near future.
Meanwhile, to keep your scores high, pay down your credit card debt as quickly as possible.
FreeCreditScorequick.com your resource for free credit report offers and the most current information regarding credit news. We also provide free tips and techniques to repair your credit for free. “Remember your credit report and credit score is more important than ever now.”