If you owe $4,000 on your credit cards and have a total credit limit of $10,000, for instance, your credit utilization rate is 40%. Credit usage is responsible for about 30% of your FICO® Score.
When you close a credit card account specifically, you are reducing the amount of open credit available to you. This can cause your credit utilization rate to increase, which could have a negative impact on your credit score. credit repair Note, however, that installment loans like personal loans do not affect your credit utilization.
For this reason, a closed personal loan account would not affect your credit utilization rate. The good news is there’s not a lot to worry about when it comes to closed accounts in good standing.
Since a poor debt-to-credit ratio can affect your credit score, it’s important to pay down student loans, auto loans, or whatever other obligations you have. If you have any revolving credit accounts like credit cards, try and keep your balances to a minimum. This task can be one of the most challenging aspects of boosting your credit score, especially if you have a large balance to pay off.
Further, consumers can benefit from understanding how closed accounts really impact your score, and whether it makes sense to have them removed from their credit reports at all. To determine your credit utilization ratio, add up the balances on your revolving credit accounts and divide the result by your total credit limit.