Should I keep my accounts open even if I have paid them off? How does that reflect on my credit score?

Your creditworthiness is numerically measured from the data provided by the credit bureaus on your personal credit report; previous and current credits, the existence of personal accounts and all the financial traffic on them. Accounts are the medium through which all this flux of monetary data becomes tangible and measurable.


It is important to know that maintaining an account could help you to improve and preserve your credit score when managed properly and carefully. Paying off your accounts or obligations is good; it relieves stress and helps you to improve your credit score, whether doing it by a one-time sum or completing your last monthly fee. After that, it is common to have the impulse to close your accounts in order to feel debt-free again. However, you might think twice before making this decision because, for example, in case you were reported to any of the major credit bureaus it would be better to wait until they get notified about your new status, especially if you recently had weak or bad financial behavior.


There is not an exact timeframe for your credit score to be updated because it depends on the size of the lender. Your payment habits, balance and credit limit are usually reported monthly by most financial institutions, but the smallest ones could take more time to do it.  Additionally, you need to keep track on your scoring situation and report any inconsistency or unusual activity which might cause a delay with the information update.


For the calculation of your credit score, these are some of the most important things considered by the financial institutions:


  • On-time payments: either you pay in full or the minimum. Your payment profile is very important to build trust, whether taking loans from institutions, family or friends.


  • Credit utilization: refers to the percentage of the available amount that is already used both per account and overall. If you decide or have to split the balance between months, it is important to keep this rate below the 30% of its maximum because it demonstrates that you are not depending on your credit. Whenever you are close to the recommended usage limit on one card or account, try to use another one instead for new credits.


  • Credit age: is the average lifetime of your accounts since they were opened and it is very important for credit analyzers to predict your future payment behavior, based on historical data. Financial institutions or lenders trust in debtors with good payment history and long records.


If you trust yourself to control your own spending habits, you should keep your account open and use it occasionally, because closing it could impact your score negatively by decreasing the average age of your credits and increasing your overall utilization rate.


Your overall available credit gets reduced when you close an account, which will increase your credit utilization ratio unless you also reduce unnecessary spending. The simplest technique to maintain your actual credit score and prevent the overuse of your available limit is being aware of how much you are spending from it.


As mentioned before, most of the credit institutions report your balances and payment operations to the credit bureaus monthly. However, this does not always correspond to your bill’s due date. If they make the report before the end of your billing period, you will permanently seem to have a high balance, and even an overuse. You need to consider if you are having such a situation and solve it by placing a requirement to modify your billing dates -if possible- or paying before they make the report to the credit bureaus.


Another recommendation to preserve a healthy credit profile is to pay your balance twice instead of once per month, because it will help you to keep the credit utilization below 30%. And if you are not so good at remembering to check and pay your accounts on time, use the available technology to achieve it, it is quite simple to generate balance alerts via text message or email.


Now you know how accounts and credit score are linked. Keep a good ratio and make the best of it! And of course, Prestigio Jewelers has helped thousands of people establish and re-establish credit for close to 25 years. If you are looking for the best place to start, come in to your nearest Prestigio location for a guaranteed account today!

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