Make Sure You’re Retaining Some Borrowing History

When you're trying to improve your credit standing, for any reason, you may make significant efforts to pay down your credit card debts and other balances all the way down to zero. But once you have done so, particularly where your credit cards are concerned, you might want to think twice about closing those accounts altogether.

Once you've reduced your outstanding credit card balances to zero, you may face something of a crossroads: Do you close the account you just paid off to avoid the temptation that you'll rack up more debt, or do you leave it open but just not use it? What you may not know, though, is that if you leave your accounts open, you will likely do more to preserve your credit in a number of ways.

For one thing, the amount of time for which you've had all your accounts on average counts for part of your credit score — 15 percent — and therefore, closing one account could lower your ratings. This is obviously true of the accounts you've had for the longest period of time. In addition, such a decision could have a significant negative impact on what is known as your "credit utilization ratio." This factor makes up another 30 percent of your score and hinges heavily on whether you keep your accounts open for one simple reason: It is calculated as a percentage of your total combined credit limits that you're using at any given time. The more you owe, the lower your score will be.

For example, say you have four cards with a total maximum of $10,000. If you owed $5,000 prior to your credit repair efforts, you were using 50 percent of your limits. But once you paid off one of those cards — which had a limit of $3,500 — your outstanding credit might drop to $3,000. At that point, you owe 30 percent of your limits, and that's enough to guarantee you a perfect rating in this aspect of your score. But if you then close that card, your total limits slip to $6,500, and you are once again using a larger percentage of your available balances, thus hurting your score.

When trying to cut your debt, it might be wise to order a copy of your credit reports to see exactly where you stand and look for unfair markings. If any exist, contacting a credit repair law firm may help clear up the problems quickly.