Credit Score Lowered When You Cancel Credit
Cards
by Charles Essmeier
Most
people are aware that anytime they seek a loan, the lender will check their
credit report to see if their credit history warrants such a loan. Along
with the credit report, the lender will almost certainly check the borrower's
credit score. Also known as a FICO score, this score is a three-digit number,
ranging from 300 to 850, that represents the borrower's overall credit
worthiness.
There are several factors that come into play
in compiling a credit score. The score takes into account available credit,
any past due payments, and the length of the borrower's history, among other
things. Also coming into play is the amount of available credit that the
borrower has, along with the percentage of the available credit that is currently
outstanding. |
Borrowers often check their credit reports themselves
prior to applying for a loan in order to look for possible errors. Often,
they will see old accounts listed that they didn't even know were active
anymore, such as a department store credit card from a city in which they
no longer live. The first response in this situation is usually to cancel
the account, since it isn't being used anymore. This could be a mistake,
and could actually lower your credit score!
It is true that it may be a potential problem
to have too much available credit. Lenders could have concerns that the borrower
with ten credit cards might run out and max them all out. On the other hand,
a very important component of the credit score is the length of the borrower's
credit history. The longer the better and those people with top credit scores
usually have histories of thirty years or more. By canceling an old account,
you could be reducing the length of your credit history, which will then
consist only of newer accounts.
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There are times when canceling
unused accounts is a good idea. This is particularly true if the accounts
are relatively new ones. But closing an old account, even if it isn't being
used, could do more harm than good for someone seeking a loan.
Copyright 2006 by Retro Marketing. Charles Essmeier
is the owner of Retro Marketing, a firm devoted to informational Websites,
including End-Your-Debt.com, a site
devoted to establishing credit, debt consolidation and credit
counseling. |
About the Author
Charles Essmeier,
More Details about
credit score here. Charles Essmeier
is the owner of Retro Marketing. Retro Marketing, established in 1978, is
a firm devoted to informational Websites on topics such as debt consolidation
and credit counseling, home equity loans and lines of credit, and auto Lemon
Laws .
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