Lenders won’t typically consider closing an account as a negative item on your credit history, especially if you’re the one who closed out your account. But a closed account could have inadvertent negative impact on your credit rating.
Your Credit History’s Length
This encompasses 15% of your FICO score. If you close an account, you might be reducing your credit lines’ average age and lower your credit score. This holds true if the account you’re planning to close has been open for years. FICO likewise considers your credit history’s overall length, such that if you plan to close your oldest credit account, you might be hurting your credit score later on.
Your Use of Credit
When it comes to credit scoring, this will be included under the “amounts owed” category, which is typically around 30% of your credit score. Also referred to as credit utilization, this might hurt your score if closing a credit account will increase your percentage of credit utilization by removing part of your overall available credit, unless each one of your credit accounts have a zero balance on them.
Your Credit Types
Having a combination of different loan types are great for your score since 10% of your score involves your credit types. City Creek Mortgage and other loan consultants added that combining installment loans, such as credit cards, home loans, and auto loans helps a lot. That said, closing a credit card account, especially if it’s the only one you have, might negatively affect your score.
Yes, there are scenarios that could negatively affect your score when you close an account, but it’s not as crucial as your payment history. For instance, if a creditor closed your account, but you didn’t settle the account for less than its entire balance and you didn’t make late payments, FICO will see it as a plus for you since its scoring model designates 35% to a person’s payment history.