credit cards

5 surprising stats about credit

Closing an account won't necessarily lower your score
Next
5 of 7
Back
Cutting credit card in half

You probably know that charging up credit cards hurts your credit score. That's because 30 percent of your FICO score, the industry standard, comes from how much debt you have. The proportion of available credit on your credit cards that you use is an important ratio in this category.

Closing out a credit card account with a zero balance reduces that total amount of available credit and can increase the debt-to-limit ratio, which in turn can lower your credit score.

Yet the move doesn't always damage scores or depress them permanently. Recent research conducted by FICO found that, for consumers who saw their available credit reduced during April through October 2009, the median credit score increased from 755 to 757 over the six-month period.

"One of the reasons why they weren't decreasing was that a lot of the lenders seemed to be targeting inactive and lowly utilized cards for these credit line decreases," says Frederic Huynh, principal scientist at FICO.

In other words, low credit card balances can shield your score from damage resulting from unwanted reductions to the credit limit or account closures.

Tip: Read "How closing a credit card affects credit score" for more information on the subject.


 

 

advertisement

Show Bankrate's community sharing policy
          Connect with us
Product Rate Change Last week
Balance Transfer Cards 15.71%  0.01 15.70%
Cash Back Cards 16.36% --0.00 16.36%
Low Interest Cards 10.91% --0.00 10.91%
 
Search
advertisement
CREDIT CARD WEEKLY NEWSLETTER

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

advertisement

Blog

Allison Ross

BofA to pay $772 million over credit cards

Bank of America is refunding about $738 million to customers in addition to $45 million in penalties.  ... Read more

Partner Center
advertisement

Connect with us