Fix Credit Score - Think Closing A Credit Card Will Help Fix Credit Scores? It Doesn’t.

It’s a new year and many people have made a resolution to fix their credit score by taking better care of their finances.

One idea that they have in mind is to pay off some of their credit cards and then close the accounts. However, this may not be the right thing for them to do.

This is an example of an idea that sounds good in theory as you would have less open accounts to worry about, less available credit to tempt you into buying things, and be able to save money by paying less in interest charges during the year.

These are all good reasons for wanting to close a card but, in reality, closing it can have the opposite effect of what you wanted.

Canceling or closing a credit card may not be the best move to fix your credit score.

Paying down the balance on your accounts is good for your credit score as you are reducing the amount of outstanding debt. However, you don’t want to take the balances to zero and leave them at zero. You want there to be activity on the account.

Credit is all about showing creditors and lenders that you have the ability to manage debt. If you have no debt, you don’t have an opportunity to show that you can manage it and creditors will view you as a higher risk.

In addition, closing a credit card account will affect the major factors used in calculating your credit score.

Reduces the number and types of open accounts shown on your credit report. Since 10 % of your credit score is based on the different types of credit that you have, it’s important to have at least one open and active credit card

Shortens your credit history. The length of time that you have had creditors reporting to the bureaus counts for 15% of your score. Lenders tend to view borrowers with short credit histories as being riskier than someone with a longer history.

Negatively affects your debt / credit ratio. This ratio lets lenders know at a glance how well you are handling your finances. It shows the amount of credit you are using as a percentage of the amount that is available to you.

When you close an account, the remaining balances on your other accounts will become a higher percentage of your overall credit limit, increasing your ratio and reducing your score. Since this factor counts for 30% of your FICO score, closing a credit card can have a major impact on your score.

A general rule of thumb is to keep old accounts open and maintain a low balance on them. This way, not only will you have some reserve credit to use in the case of an emergency, but you also are showing your card company that you can manage your debt.

Next...discover more tips on how to fix your credit score, along with a free course that will help guide you through the steps to better credit, at http://fixcreditscorefast.org/credit-repair