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Closing Unused Credit Lines

I have a credit line open with a zero balance that I am not planning on using again. Should I close it?

I had a $21K unsecured loan that I opened 03/2008. I paid it off within a year and it remains open (with a 19.99% interest rate) as a revolving credit line. I do not plan on ever using it again, but am hard pressed whether I should close the account or not. The account has a zero balance but I'm not sure what would look better on my credit score - keeping it open with zero balance or closing it? I keep reading about balance to available credit ratio but at the same time I am reading about available open credit to income ratio. I plan on purchasing my first home at the end of the year and want to know what my best path to take is. A little more about my credit history: I have two open credit cards with a total available limit of $17K and a combined balance of $8K. A car loan for $19K, with a remaining balance of $5K. And student loans of roughly $20K. I have no late payments on accounts and my history (open and closed accounts - totaling about 20) spans roughly a little over 10 years.

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Bill's Answer
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Updated: Sep 23, 2014

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From my experience, I would generally say that it is better to leave an account like the one you describe open, as it has a positive payment history and it is positively affecting your debt to available credit ratio. Your total amount of outstanding debt, and how it compares to all available credit on your credit reports, exerts a strong influence on your credit score (approximately 30% of your overall credit score is based on this ratio), which is much more than open credit to income. In fact, your income does not even figure into your credit score since the bureaus do not report income information in consumer credit files, so you really do not need to worry about how your available credit compares to your income.

To read more about credit, credit reports, and credit scoring, you can visit the Bills.com Credit Resources page. Your income is an important factor used by potential lenders in determining your ability to repay a loan, but it does not affect your credit score.

Since you are planning to purchase a home, I also encourage you to visit the Bills.com Home Purchase page. I wish you the best of luck in finding a home and obtaining a loan, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

www.bills.com