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Paying Off Credit Cards

Does Closing a Paid-off Account Harm My Credit?

I am paying off my credit cards. Does it affect my credit score to close paid off accounts?

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Bill's Answer
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This is a very good question. First it is important to understand how your credit score is calculated. Your credit rating is calculated based on several variables, including: your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been made to look at your credit history.

Therefore, if consolidating your lines of credit to one ends up maxing out your one utilized credit line, then it may hurt you. If, on the other hand, your credit utilization remains low, then it may benefit you (particularly if it lowers a different credit line which is maxed out, or high). Similarly, if the accounts that you close have a long and good payment history, then you should probably keep them open. If they are short history accounts, or have poor payment history, then close them. Additionally, you will not want to close all of your lines... but you don't want too many open either - it's a judgment call based on all of these factors.

If the account you are contemplating closing is your oldest then it is setting the baseline and starting point for your credit history. Look long and hard at closing your oldest account.

An additional consideration is the cash flow impact. You should start by paying off your highest interest accounts, and then work down to the lowest interest accounts, then this strategy may save you money.

These are a few of the considerations. If you would like more information, please visit our debt relief boot-camp.

I hope this information helps you Find. Learn. Save.

Best,

Bill

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