Closing Multiple Zero-Balance Credit Card Accounts Will Lower Your FICO Score
In an effort to clean your cluttered finances, you close three zero balance credit card accounts. Lightening your wallet feels good now, but the potential hit to your FICO Score could weigh you down later.
If you answered true — you’re right!
Getting rid of unused accounts — and removing the potential to spend more money — seems like a smart money move. And it could be worthwhile if you’re tempted to overspend because of the extra cards or if the card issuer imposes an annual fee.
But, consider once again your credit utilization ratio.
Say that each of the three cards you closed had a limit of $10,000, that you have three remaining cards with limits of $5,000 each, and that you have $7,500 in debt on the remaining cards. By eliminating the three cards with $10,000 limits — for a reduction of $30,000 in your total credit-card limits — you slash your overall limit from $45,000 to $15,000. And your credit-utilization ratio for all accounts jumps from a desirable 17% to a problematic 50%. In that case, you’d be better off keeping the accounts open and leaving the balances at zero.