What might result from a client closing their credit card accounts?

What might result from a client closing their credit card accounts?

• A. It increases credit utilization, causing a negative impact on credit score
• B. It improves the client's credit history length
• C. It eliminates the need for future payments
• D. It has no effect on the credit score

Answer: (A)

Closing credit card accounts can indeed lead to an increase in credit utilization, negatively impacting a client's credit score. Credit utilization is the ratio of the total amount of credit available to the amount currently being used. When a client closes a credit card account, they effectively decrease the total amount of credit available to them while their debt levels remain the same or could increase if they continue to use other cards. This elevated ratio can signal to credit bureaus that the client is using a larger portion of their available credit, which may indicate higher risk and result in a lower credit score. It’s important to understand that maintaining a low credit utilization rate is essential for a healthy credit score. Credit experts often recommend keeping utilization below 30%. Thus, closing accounts, especially those with high limits, can significantly impact this ratio. Other options do not accurately reflect the implications of closing credit accounts; for instance, such action does not improve the history length since older accounts are lost, and payments will still be required on any remaining balances. Additionally, account closure will not leave a client's credit untouched; rather, it actively influences their credit situation.

Closing credit card accounts can indeed lead to an increase in credit utilization, negatively impacting a client's credit score. Credit utilization is the ratio of the total amount of credit available to the amount currently being used. When a client closes a credit card account, they effectively decrease the total amount of credit available to them while their debt levels remain the same or could increase if they continue to use other cards. This elevated ratio can signal to credit bureaus that the client is using a larger portion of their available credit, which may indicate higher risk and result in a lower credit score.

It’s important to understand that maintaining a low credit utilization rate is essential for a healthy credit score. Credit experts often recommend keeping utilization below 30%. Thus, closing accounts, especially those with high limits, can significantly impact this ratio. Other options do not accurately reflect the implications of closing credit accounts; for instance, such action does not improve the history length since older accounts are lost, and payments will still be required on any remaining balances. Additionally, account closure will not leave a client's credit untouched; rather, it actively influences their credit situation.