How Closing your Card my Hurt your FICO Score
ByDealing with many credit card issuers can be a nightmare. Sometimes they make  you do things that make you want to cancel your card. I have seen  many consumers who have been treated badly by their credit card companies and out of spite close their credit accounts.
Closing your account will most likely impact your credit score and could prevent you from qualifying for a loan at the best terms, or even qualify to begin with. In the past, the most effective way around this problem was to pay off the balance and stop using the card. As long as the account remained open, your credit score would remain unscathed. This strategy will now most likely cost you money.
Responding to credit card reforms that take effect Feb. 22, credit card companies are looking for new ways to raise revenue. Some are adding annual fees. Others have started charging inactivity fees if customers fail to use their card during a specified period. It appears you are going to have problems either way as these credit card companies do everything they can to squeeze the last dime out of each of us.
Consider the following prior to closing any account that reports to the credit bureaus; Your total available credit. Closing a credit card account will impact your score hurt your score because of what’s known as the credit utilization ratio which makes up 30% of your credit score. Your credit utilization ration is  based on the amount of debt you have outstanding as a percentage of your available credit.
By closing a credit card it reduces your available credit, leading to a higher utilization rate if you carry a balance. Â To determine how closing a card will affect your utilization ratio, get out a calculator and copies of your credit reports. Add up how much available credit you have and how much you’re using. Then subtract the available credit from the account you’d like to close.
Ideally, you should have a credit utilization rate of 35% or lower. Â One other consideration prior to closing an account is your credit history, which accounts for 15% of the FICO score. But when you close an account, it doesn’t disappear from your credit record. The credit bureaus will keep a record of your history with that account for about a seven years.
Hayden Gerson is the President of HPM Financial and a Credit Optimization Specialist. He can be reached at (800) 701-5022 ext 101.
