Does a Closed Revolving Account Reflect Negatively on Your Credit Report?

Credit card accounts are revolving accounts -- an account that requires a minimum payment each month on any balance due and limits the amount of credit you can have at a time. If you are abusing your credit cards, you may be considering closing those revolving accounts. However, this isn't always the best idea, as closing accounts can damage your credit.

Age of Accounts

If you close your revolving credit accounts, the average age of your open accounts will take a dip. If the average age of your open accounts is low, you are less creditworthy than someone who has a higher average age of accounts. If you have had accounts for a longer period of time, it proves that you have built a credit reputation over the course of the years, while it may be hard to tell how trustworthy you are if you have opened your accounts recently. Thus, closing your accounts can hurt your credit score.

Debt-to-Credit Ratio

The credit bureaus examine how much debt you have relative to your total available credit. If you have far more credit than debt, your credit score will be higher than it would be than if you would have used most of your available credit. When you close revolving accounts, you cut the total credit available to you. Thus, your debt will comprise a higher amount of your total credit, therefore lowering your credit score.

Credit Report Error

Check your credit reports after you close an account. If the credit bureau mistakenly states that the creditor closed the account instead of you, it'll hurt your credit score. Creditors close accounts when debtors don't pay their bills, as agreed. Write a letter to the credit bureau if you find this mistake in your report so that it won't unintentionally harm your credit.

Considerations

Closing revolving credit lines hurts your credit score more if you have balances on your other credit accounts, as opposed to not having any. Thus, before closing a credit line, you should make every effort to reduce your credit balances. Although closing a credit account can hurt your credit, if you can't resist overusing an account, closing it might be your best defense against future credit problems.