What is the typical impact on a credit score when a borrower pays off and closes a credit card account that has been open for 10 years?
Correct Answer
C) The score may decrease due to reduced credit history length and available credit
Closing a long-standing credit card can negatively impact credit scores in two ways: it reduces the average age of accounts (length of credit history) and decreases available credit, potentially increasing credit utilization ratios on remaining cards. The 10-year history contributes positively to the credit score, and removing this established tradeline typically causes a score decrease.
Why This Is the Correct Answer
Closing a long-standing credit card can negatively impact credit scores in two ways: it reduces the average age of accounts (length of credit history) and decreases available credit, potentially increasing credit utilization ratios on remaining cards. The 10-year history contributes positively to the credit score, and removing this established tradeline typically causes a score decrease.
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