Does Closing an Account affect your Credit Score?

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You’d expect any account Settled without defaults to benefit your credit score, and you’d be right.

But there might also be a downside!

Settling unwanted credit cards or bank accounts might seem a good idea. You pay off any outstanding balance, close the account, and get a Settled marker on your credit report.

We’ve already established that lenders like to see Settled accounts on your credit report as a sign of sound financial management.

However, perhaps closing credit accounts is not always the best way to go!

One of the most significant factors affecting your credit score is your Credit Utilisation Rate – the percentage you currently use of your total available credit.

It’s best to keep your Credit Utilisation ratio as low as possible. An excellent guide to aim for is to keep it under 30%. Many lenders consider that ratio high if you’re going over 50%.

When you close an account such as a credit card, you reduce your available credit. As a knock-on effect, your credit utilisation will increase, likely lowering your credit score.

The higher the balance you use on your other cards, the higher the percentage of credit you utilise and the more your overall debt-to-credit ratio could shoot up!