If That S True, Your Credit Score Is Probably The Least Of Your Worries

Category: Finance, Credit.

That statement does sound logical, especially when a mortgage broker tells you that lenders are suspicious of people who have lots of unused credit available to them.

Of course, if you think about it, what s kept you from racking up big balances before now? What s to keep you, from rushing out, after all and charging up a storm? If you ve been pretty responsible with credit in the past, you re likely to continue to be pretty responsible in the future. The score also punishes behavior that s not so responsible, such as applying for a bunch of credit you don t need. That s the basic principle behind credit scoring: It rewards behaviors that show moderate, responsible use of credit over time, because those habits are likely to continue. Many people with high credit scores find that one of the few marks against them is the number of credit accounts listed on their reports.

But after you ve opened the accounts, you ve done the damage. When they go to get their credit scores, they re told that one of the reasons their score isn t even higher is that they have" too many open accounts. " Many erroneously assume they can" fix" this problem by closing accounts. You can t undo it by closing the account. Closing accounts can hurt you in two ways: Closing accounts can make your credit history look younger than it is. You can, make matters worse, however. Your credit score factors in the age of your oldest account and the average age of all your accounts. Closing accounts reduces the credit available to you, making your debt utilization ratio soar.

So closing accounts, can ding your, particularly older accounts score. The" FICO" formula measures the gap between the credit you use and your total credit limits. If you suddenly lower that limit by shutting down accounts, the gap narrows- and that s a bad thing. The wider the gap, the better. This is true whether or not you keep a balance on your credit cards or pay them off in full every month. In reality, closing revolving credit accounts can never help your score, and it might hurt it.

Remember: The FICO formula doesn t differentiate between balances that are carried and those that are paid off. There are, some good reasons, however to close accounts. If that s true, your credit score is probably the least of your worries. If you have a serious spending problem, you might find cutting up and canceling your credit cards is the only way to keep yourself in line.

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