Warning! Closing your credit cards can damage your credit score.

This is one of those questions that we as credit repair professionals are asked all the time, "will closing my paid-off credit card improve my credit?".

The short answer is no!  As counter-intuitive as this may seem, it is true. Your credit score is based on a complex mathematical formula that takes into account numerous data points.  One of the primary data points used is a ratio that looks at how much available credit you have versus how much you currently owe.  The lower this ratio the better. 

As an example, if you have $10,000 worth of credit, and have balances totalling $8,000 you have used 80% of your available credit.  On the other hand if you have $10,000 worth of credit, and have balances totalling $3,000, you have used 30% of your available credit.  As strange as this may sound, utilizing only 30% of your available credit will increase your score.

Therefore, if you close a paid-off credit card that had a $3,000 limit, then according to the example above you would now only have $7,000 worth of credit, and if you had the same $3,000 balance you would now have used 43% of your available credit, and again in the perverse eyes of the credit scoring model this would bring down your credit score.

Our recommendation then would be to keep those paid off cards open, but don't use them!

An interesting argument against this thought process however can be found in this article, where the author asks you to look inward and determine if you are not able to resist using this credit then you should close the account.

"That being said, if your issue is not wanting the extra credit whispering to you in your sleep, you will be better served to close the card and avoid a worse debt problem down the road."

As with any credit or finance question, there are many ways to look at and many possible solutions, it all depends on how you look at it.

About Anthony Candella

Anthony is the founder and Directing Attorney of YourCreditAttorney.com and has been helping consumers just like you understand and improve your credit and financial situation since 2003.