It’s not the same to have an open line of credit than having it maxed out. If you have $8000 of credit but your balance is far from the limit, that open credit line won’t affect your report provided that you make all payments on time. But if you have your credit lines maxed out and almost no credit left, your debt exposure will compromise your credit score.
Closing Accounts With Too Much Debt and With No Debt
Closing active accounts when you have too much debt can damage your credit mainly because it reduces the ratio between your debt and your available credit. Thus, in an overall analysis your credit lines show more maxed out. This is the main reason why it is not advisable to close open lines of credit (like credit card accounts) when you have too much debt.
On the other hand, closing a credit card account when you have no debt or little debt is advisable because the ratio between your available credit and your debt won’t be affected. And your credit report will show less open accounts with available credit which implies less possible debt that can be taken at any given time by just using the credit card.
Be Prepared For What May Come
If you are determined to closing your accounts, then, you should be aware of the consequences that your actions may bring on. For instance, your credit score may drop slightly for some time. Till it recuperates, you’ll find it harder to obtain finance from traditional lenders unless your credit score was previously on a very good stance.
Also, it is not strange to start receiving offers from credit card issuers and banks when trying to close an account. They’ll try to convince you of keeping your card by offering you different promotions. Don’t just send a note requesting the closure of your accounts, do a follow up and make sure they are finally closed. Otherwise you may find yourself unaware of having an open line of credit. Requesting your credit report the following months is a good idea to make sure that the closure has been recorded.
Also, sometimes closing accounts is not the solution to your debt problems. Having credit available is not such a bad idea provided that you have discipline. Thus, it is better for you to hire debt consolidation services or money management classes so you can improve your debt situation And, you will be able to keep your accounts open or at least a couple of them. Most importantly, you’ll learn how to manage your finances and how to get good terms both on your credit cards and loans.
Zara Colby is the author of this article which can be found also at Consolidationdirect.com where there is information on tax debt relief, credit card debts, student loan consolidation programs and any other kind of debts.
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