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How Shutting off a Personal Line of Credit Affects Your Credit Score

Updated: October 2, 2024

Closing a personal line of credit can have a detrimental impact on your credit score, and we’ll explain why shortly. But first, let’s clarify what a personal line of credit is. Essentially, it’s a flexible loan with a predetermined limit that allows borrowers to withdraw funds up to that limit over a specified period as needed. Many people utilize personal lines of credit for purposes like refinancing student loans or funding home improvements.

Now, you might be wondering how shutting down a personal line of credit can influence your credit score. Why is it advisable to keep it open even after you’ve paid it off? Let’s dive into those important points.

The Affects to Your Credit Score

Closing a personal line of credit can harm your credit score, primarily by affecting your credit utilization ratio. When you close a line of credit, you reduce your overall available credit, which can also impact the length of your credit history. Credit utilization accounts for 30% of your credit score and is the second most important factor in its calculation. It’s determined by dividing the total amount you owe by your total available credit. To maintain a healthy score, it’s generally best to keep your credit utilization below 30%—the lower, the better.
7 credit cards of different colors
Person holding a credit card and on a laptop

What Your Credit Score Looks Like With A Credit Card & Personal Line Of Credit Open:

Credit Card #1  Available Credit $10,000 with a balance of $5,000

Credit Card #2 Available Credit $10,000 with a balance of $5,000

Line of Credit: Available Credit $30,000 with a balance of 0

Total in available credit is $50,000 with balances of $10,000 (a/k/a utilization). Take 10,000 (the total that you owe) and divide that by your “available credit” of $50,000.  This calculation shows that you have used 20% of your available credit.  Which is a good ratio; You are in the range you want to be in for revolving debt. (Remember 30% or less is the magic number).

What Happens To Your Credit Score When You Close Your Personal Line Of Credit:

Credit Card #1  Available Credit $10,000 with a balance of $5,000

Credit Card #2 Available Credit $10,000 with a balance of $5,000

The total available credit is now $20,000 with balances of $10,000.  You are now at 50% of your capacity and your credit score just decreased because you closed your credit line and lowered your capacity.  

You have just lowered your credit score by 50 points in this example because you closed your line of credit. 

Rule of thumb: For every 1% capacity= 1 point on your FICO score.

Person pointing at a credit score meter

Launch CU offers low-rate personal loans aimed to save you money. Check out the three different types of personal loans we offer.

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