Does Paying Off Closed Credit Cards Help Your Credit Score?

Paying off closed credit cards can be a great way to free up some space in your wallet and reduce debt, but it's not always the best decision for your credit score. In fact, it can sometimes even hurt it.

Credit scoring models like FICO and VantageScore consider the age of your credit accounts when calculating your credit score. The older your accounts, the better your credit score tends to be.

However, if you close a credit card account, it can actually lower your credit score because it reduces the average age of your credit accounts.

Closing credit cards can have a significant impact on your credit score, and it's essential to understand the potential consequences before making a decision.

Closing a credit card account can decrease your average account age, which can negatively affect your credit score. This is because a longer credit history provides lenders with more information about your financial behavior.

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Closing a credit card with a high credit limit can also increase your credit utilization ratio, which can further damage your credit score. For example, if you close a credit card with a $5,000 limit, your credit utilization ratio may increase, leading to a lower credit score.

You should think carefully before closing a credit card with a positive payment history, as this can erase the benefits of having a long credit history. In fact, it's recommended to keep accounts open, even if you don't use them, as this can increase your total available credit and decrease your utilization ratio.

Here are some situations where closing a credit card might make sense:

However, if you're considering closing a credit card, make sure to:

A closed credit card account can stay on your credit report for up to 10 years, and can negatively impact your credit score. However, the impact may be minimal if you have other credit cards with high balances, or if the unused card is fairly new, has a low credit limit, or you don't have much debt.

Closing a credit card can also reduce the total available credit associated with your financial standing, which can increase your credit utilization ratio and lower your credit score. For example, if you were using only 30% of your available balance, closing a credit card may increase that percentage to 40% or 50%.

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Closing a credit card can have a significant impact on your credit score, and it's essential to understand the effects before making any decisions. Closing a credit card can decrease the amount of available credit, which can raise your credit utilization ratio, a key factor in determining your credit score.

Your credit utilization ratio accounts for 30% of your credit score, and it's recommended to keep it below 30%. Closing a credit card can increase your credit utilization ratio, making it harder to qualify for loans or credit cards in the future.

A closed credit card account can stay on your credit report for up to 10 years, and if you had missed payments on the account before it was closed, those missteps remain on the account for seven years. This can negatively impact your credit score, especially if you have a history of late payments.

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Closing a credit card can also affect the length of your credit history, which is another crucial factor in determining your credit score. The longer you hold a credit account, the more valuable it is in your credit score determination.

Here are some key facts to keep in mind:

It's worth noting that the impact of closing a credit card on your credit score can vary depending on your individual circumstances. If you have a long credit history and a low credit utilization ratio, closing a credit card may not have a significant impact on your credit score. However, if you have a short credit history or a high credit utilization ratio, closing a credit card can have a more significant impact.

In some cases, closing a credit card can actually help your credit score if you have too much available credit and a low credit utilization ratio. However, this is not always the case, and it's essential to consider your individual circumstances before making any decisions about closing a credit card.

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Closing a credit card can have a significant impact on your credit score, as it reduces the total available credit associated with your financial standing. This can increase your credit utilization ratio, making your creditors interpret you as being in higher financial distress.

Keeping a credit card open, even if you barely use it, can increase the amount of credit available and raise your credit score. This is because the longevity of your credit card accounts plays a role in determining your credit score, with older accounts contributing positively to your score.

If you have a high credit utilization ratio, closing a credit card will likely damage your credit score. This is because a higher percentage of available credit used can be seen as higher financial distress.

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Closing a credit card can significantly impact your average account age, which is a crucial factor in determining your credit score. This is because a longer credit history provides lenders with more information about your financial behavior over time.

If you close a card that's older than your average account age, your average age will drop dramatically, making it look like you have less credit history. For example, if you have five credit cards with ages of 15, 12, 7, 3, and 2 years, closing the older cards will reduce your average account age from 7.8 years to 4 years, which is not much credit history.

Closing a card that's been open for a long time, such as 10 years, will have a significant impact on your average account age. For instance, if you have a 10-year-old card, an 8-year-old card, a 5-year-old card, and a 1-year-old card, closing the 10-year-old card will reduce your average account age from 6 years to 4.66 years.

Your credit report has a long memory, and closed credit accounts can stay on your report for up to 10 years, affecting your credit score.

Additional reading: What Is the Average Credit Limit on Credit Cards

Working with the original lender can be a great way to pay off debt and improve your credit score. If the debt wasn't transferred to a collection agency, you can arrange payment with the original lender.

Paying off the debt with the original lender is a more favorable option, as it allows you to avoid the negative mark of a collection account. Once you pay it off, the lender should mark it as 'paid charge-off' and change the balance to zero.

Lenders tend to view paid charge-offs more favorably, which can help your credit score in the long run.

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Rebuilding your credit score takes time, and it's like watching a garden grow. You can't rush it, and with a little patience, you'll see progress.

Your credit score will improve as you use your credit cards and pay on time every month. You can track your progress by using a free credit-scoring service like Credit Karma or Credit Sesame.

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Little by little, your credit score will get back to where it was after closing a credit card account, likely in just a few months. This means timing is everything when considering closing a credit card.

If you've made timely payments and avoided overdraft while you had a credit card, that information will stay on your credit report for 10 years and be factored into your score.

You can even write a goodwill letter to request that a creditor or collector remove a paid account from your credit report as a courtesy. Be sincere and explain why you became late, and you'll have a better chance at success.

It's worth the effort to maintain good credit, and with a little patience and persistence, you can rebuild your credit score.

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Paying off closed credit cards can have a positive impact on your credit score, but it's not the only factor to consider. Keeping a credit card open, even if you barely use it, can increase your credit score by raising your credit utilization ratio.

A good credit score is based in part on the longevity of your credit card accounts, so if you've had a card for many years that has closed or is about to close, do your best to hang onto it. If you don't like the card's annual fee, you can ask the issuer to swap out the original card for one without the annual fee, while keeping your card history.

Paying off collections may or may not cause your credit score to increase, depending on the credit-scoring model used. Newer models ignore collections accounts with a zero balance, while older models still factor them into your score.

Related reading: Will Paying Debt Collectors Help My Credit

Keeping a credit card open can boost your credit score. This is because it increases the amount of available credit, which impacts your credit utilization ratio, accounting for 30% of your credit score.

Paying off collections may not always increase your credit score, as collections accounts can stay on your credit report even after you've paid off the balance. However, newer credit-scoring models may ignore collections accounts with a zero balance, which can improve your score.

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A paid balance is always better than an unpaid one, especially when applying for new credit or a major loan. However, paying off a charge-off or collection balance won't delete the item from your credit report, and it won't help your credit score right away.

To potentially get a collection account removed from your credit report, draft a pay for delete letter offering to pay the balance in full in exchange for having the item removed. The creditor or collector may deny your request, but it's worth a try.

Here are some options to consider when dealing with collections:

If the account is six or more years old, you can wait and let it drop off your credit report. The credit reporting time limit for collection accounts is seven years, and for a charge-off, it's seven years plus 180 days from the date of the first delinquency.

Closing a credit card account can have a significant impact on your credit score, but the drop can be lessened if you close an account that's been open for a few months or has a very low credit limit.

This is because accounts that have only been open for a short time or have a low credit limit are less influential on your overall credit score.

It's a good idea to close these types of accounts if they're no longer serving a purpose, as it can help minimize the negative effect on your credit score.

However, be aware that closing an account with a high credit limit or one you've had open for years will have a greater impact on your credit score.