When it comes to credit repair, there is often more fictional information than there is fact. In this article we will continue to explore some of the credit repair myths and most common misconceptions consumers have when it comes to credit. Today, we’re talking about whether or not closing accounts is good for your credit (in the short and long term).
When it comes to closing credit card accounts, it might seem like having your credit report reflect closed accounts would immediately improve your score, but the truth is, closing accounts can actually drop your score.
Myth: Paying off and closing credit accounts will improve my credit score immediately.
Fact: Paying off your credit cards will help, but closing the account will hurt.
Your overall credit score is determined by a number of different factors, but one of the key factors used in determining your score is how much unused credit you have available. If you close your credit card, it reduces the amount of unused credit available and can potentially have a negative impact on your credit score. As a rule of thumb, you should never use more than 40-50% of the available credit on any card. By closing the account on a paid-off card you’ve gotten rid of a portion of the credit available.
A Better Plan to Repair Credit
A better way to repair credit is to make consistent payments every month that are higher than the minimums due on all of your cards. Credit history represents 35% of your credit score, so you can improve your credit by establishing a consistent history of regular, on-time payments. You can still have a goal of paying off cards, but leave them open, use them occasionally, and pay them off. Treat credit cards like a tool to improve your credit score, allowing you access to better interest rates on large purchases, instead of using them like extra cash to spend.
If you need help creating a credit card payoff plan, Ovation has tools that can help you determine whether to target the card with the highest balance, the card with the highest interest rate, or many other scenarios. And, we’re always here to provide you a free consultation to help you with your credit repair issues! Just give us a call: 1-866-639-3426.