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I was recently told that although my credit payments and everything is perfect, because I had an account that was closed but still had a balance, that this was affecting my credit score.

I transferred the balance to an active card to stop it from negatively affecting me.

But I am curious to know if this is true, and what other factors that people might not necessarily think of could be affecting ones credit score negatively?

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Hi @Moore Income! It makes sense that having a card closed that still has a balance would lower your credit score since it would increase your utilization ratio and also lower the average age of your credit. In that case, transferring the balance onto an active card may not help right away and could even lower it if it increases your utilization even more. But keep making on-time payments and chipping away at the balance and your score will improve over time.

One thing that's important to remember for credit scores is that sometimes what's good for your score in the long run will also hurt it temporarily. That's why it's best not to worry too much over smaller fluctuations and focus on the big picture, i.e., establishing a good payment history and reducing debt. For example, applying for a new credit card is usually a good move, provided that you'll pay off the balance each month. You'll be able to build even more payment history and reduce your credit utilization. Those two things combined determine 65% of your score.

But when you get new credit, you get a hard inquiry on your report and you usually lower your average credit age. It's not a big deal in the long term, and your score will rebound pretty quickly. You just have to be prepared for a short-term drop. The new credit will often help you over time.

Like @PiNaY I saw my credit score drop temporarily when I paid off my previous car loan. I got pretty upset because I was expecting my score to go up — which it did a few months later. Now I'm just a couple months away from paying off my car loan, and I'm expecting my score to take a short-term hit again. This time I don't care. I'm fine with having a slightly lower credit score for a bit because that's $300 extra in my pocket each month!

Hi @Moore Income! It's a great question. While most are aware of the "big" credit factors that affect your credit, like making on-time payments and keeping credit card balances low, there are a few other factors that have a smaller impact on your credit score.

Credit Age: Unless it's absolutely necessary, we recommend not closing a credit card account after you've paid it off. Having older accounts contributes to a longer credit age which can help boost your score.

Credit Mix: Lenders like to see a mix of accounts on your credit report to get a sense of how you deal with different kinds of debt. This may be why you see a temporary slight drop in your credit score when you pay off an auto loan, for instance, especially if you don't have other types of accounts in your mix, like a mortgage or student loan.

To echo what @Dear Penny said, it's important to remember that your cash and credit work together. So even though paying off a loan may temporarily lower your credit score, it sets you up on a path to even better financial health that involves both your credit and your cash in the long term.

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