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Will Closing My Credit Card Account Lower My Score?

Authored By: Robert La Palme, President/CEO on 2/5/2019

This is an important question that you need to consider when you're paying off debt and working hard to improve your credit score.  The reason this is important is that your credit score is a common method used by financial institutions and insurance companies to evaluate your expected performance when they issue either credit or an insurance policy. There is no one score that suits every need, so many of these companies will use different kinds of predictive modeling tools.  

Generally speaking, when we refer to a consumer's credit score, we are referring to their FICO® Score.  This may also be referred to as the Fair Isaac Score, so named because it was developed by the data analytics company of the same name.

As with most things relating to your credit, there is no "one-size-fits-all" answer to the question addressed by this article: "Will closing my credit card account lower my score?"   In fact, despite the myriad of companies claiming otherwise, only Fair Isaac knows the true formula used in their closely-guarded, proprietary analytic tools.

What we do know, however, is that there are two factors which are given an enormous amount of weight when calculating your score:  (1) the timeliness of your payments, and (2) the percent of outstanding balances you owe in relation to your total credit limits. This ratio of balances-to-limits is your"revolving utilization".

Since closing a credit card eliminates your "limit", you may actually reduce your score by increasing the ratio of balances owed to remaining open credit limits.

For example: a person who owes $1,000 against total credit limits of $5,000, has a revolving utilization of 20%, and still has 80% of their remaining credit lines available to them. If that person closed half of their open credit limits, but still owed the $1,000, they have increased their utilization to 40%, and decreased the remaining credit available. In general terms, this action is likely to be detrimental to their score.

Although many consumers intuitively believe that having less available credit is good, we show in our example that the measurements considered in score analytics are complex and the results may not be what they expected. Each person's situation must be analyzed carefully to determine the best course of action necessary to enhance their score results.

In addition to taking advantage of our new Credit Sense tool that we offer to our members, you should also make it a point to speak with one of our Member Service Representatives to get a free review that is designed to help you improve your score. We hope you will!

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