I want to lower my 30% APR on my unsecured credits cards and expedite payment of my credit card debts; but I am told by the banks that they will go as low as 6% for 12 months or 0% for 5 years, so long as I agree to enter into a one of these payment arrangements and close my credit card accounts - How will entering into a short- or long-term payment arrangement and closing my credit card accounts impact my credit score? Also, in this case, is the account being technically closed by me or by the bank? Does that distinction matter?
Credit scoring models are far too complicated and consider too many factors for me to determine specifically how any action, such as entering into a repayment plan with your creditors, would affect your overall credit rating. Also, since I do not know exactly how the creditors are planning to report this information, it is difficult for me to draw any meaningful conclusions about whether these proposed plans will benefit your credit score. I encourage you to contact the credit card lenders who are making these offers to determine ask exactly how this information will be reported to the consumer credit bureaus.
If you have available credit on the cards, closing them could slightly lower your credit score. The available credit will no longer be available, but the outstanding balance will still show, which will likely increase your overall debt to available credit ratio. How much the reduction in this ratio will drop your score depends on what other positive trade lines and other credit information you have that are positively influencing your credit score.
Again, you should probably contact the creditors directly to find out how they will report these accounts to the credit bureaus once you enter into a payment arrangement, and whether the accounts will show that they were closed by the consumer or by the creditor. In most cases, potential lenders view accounts that were closed by the borrower in a slightly more positive light than those closed by the creditor; it is often assumed that you did something wrong if the creditor chose to close you account. However, the impact on your overall credit score of these two statuses is almost always minimal, so you should not be overly concerned about whom the credit bureaus show closed the account. Even if the creditor insists that it is going to report the account as Â“closed by creditor,Â” the effect this slightly derogatory information is more than outweighed by the amount of money you will save by having your interest rates reduced by over 20% per annum.
To learn more about credit, credit reports, and credit scoring, I encourage you to visit the Bills.com Credit Resources page at /credit/. I wish you the best of luck in negotiating a workable repayment arrangement with your creditors, and hope that the information I have provided helps you Find. Learn. Save.