Closing a business card while preserving your credit score
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Dear Your Business Credit,
How do you close a business credit card after you sell your business without hurting your credit? -- Barbara
A business credit card affects your personal credit score, but not to the extent a personal card does, as I discussed in a previous column: "Keeping business credit off your personal record." Not all business card issuers report activity on these cards to credit bureaus to use in calculating your personal credit score.
As a result, closing the card may not have the same detrimental effect on your overall credit utilization ratio as closing a personal card could. Credit utilization is the percentage of your available credit you are using. As you may know, when you have a high credit utilization ratio, it can lower your credit score. By closing a credit card, you can increase your credit utilization and hurt your credit score. Your existing debt will become a larger portion of your total available credit.
The best way to find out if your card issuer reports on your business card usage to personal credit bureaus is to call the customer service number and ask. Assuming your issuer does report to the credit bureaus, you'll want to make sure your overall credit utilization stays the same once you close the business card. There are several ways you can do that. One is to apply for a new card and not use it or use it very little. If the credit limit is similar to that of your business card, that should help you keep credit utilization the same.
Another way to maintain your current credit utilization ratio is to pay down the balances on your other existing cards, if you have any. That may be easier said than done, but since you are in the position to close one card, I'll assume this is an option for you. Focus on paying down the card that is nearest to the limit first, because your utilization of individual cards affects your score.
If you want some added assurance your credit score won't dip, you can take extra steps to bolster your credit score. During months when you have a big, unexpected expense such as a car repair that puts you near your credit limit, make an extra payment midway through the month to pay it down. Also make sure you stay on time with your payments on other cards. Automate payments if possible.
Finally, check your credit reports with the major credit bureaus -- Experian, TransUnion and Equifax -- and report any errors. You can get one free report from each bureau every year at AnnualCreditReport.com.
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