Bad Credit Boot Camp

An OppLoans Guide to Understanding Your Credit, Credit Report, and Credit Score.

Don’t close any of your credit card accounts

This might seem like strange advice for anyone looking to get out of debt and improve their credit score. If you have a card you don’t want to use anymore, canceling it seems like a logical solution, right? Wrong. In fact, closing a credit card account can actually LOWER your credit score. Here’s why:

First, closing a credit card account can reduce the age of your credit history, which is a major factor in deciding your score. The older your credit history, the better, so if you cancel your oldest account your score will take a ding along with the age of your credit history.26

Cutting

Another reason why closing an account can be bad for your credit? It will likely raise your credit utilization ratio. Imagine you have two cards open with a $2,000 credit line on each, which gives you a total $4,000 credit limit. If you have a $1,000 balance on one card, and a zero balance on the other, your credit utilization ratio will be 25 percent which is less than the 30 percent limit you want to stay under. But cancel that card with the zero balance, and all of a sudden your credit limit drops to $2,000, and your credit utilization ratio will jump to 50 percent, which will hurt your score.

If you have a credit card you’re not using, don’t cancel the account. Pay off the balance, and keep it open. Use it to buy yourself a cup of coffee once a month and pay it off immediately after.

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