Will closing my Amex business platinum card hurt my personal credit or business credit scores and indexes?
This is a good question. Usually Amex posts credit cards to personal credit reports even if they are business credit cards. To be certain you can pull a copy of your personal credit reports before taking any action. To get a free copy annually go to the annual credit report site. If the card is on the report it can impact your credit scores in a few ways. If it is not on your credit report and you close it there will be no impact to your personal or business credit. Business credit reports do not usually report American Express credit cards as a trade line.
Here are a few ways closing your card can hurt you if it appears on your personal credit report:
Balance to limit (B2L) ratios on revolving credit have weight on credit scores. Revolving credit is classified as most credit cards, over drafts on checking accounts, and some lines of credit. Both individual & aggregate B2L ratios impact credit scores. For example, if your total limits are 100k and your total balance is 50k you are at a 50% B2L ratio. The closer the balances inch up to aggregate and individual limits the more your scores drop. High balances on revolving credit reflect a borrower’s higher risk to lenders and creditors. Statistics show that consumers with high B2L ratios on revolving credit are much more likely to default. If the card you are closing is in the revolving credit category you are reducing your aggregate limit which will reduce your ability to charge without altering scores.
In our last example, if the 50k card was closed with the 100k aggregate limit the 50k balance would become a 100% B2L ratio & the scores would plummet. Scores can drop hundreds of points if B2L ratios on revolving credit are maxed out. There are some Amex cards that are not considered revolving credit. The way to find out is to get a copy of your FICO scores and see what category it is listed in when you view the account. If it says “Open” it is not included in the revolving category & will not impact the B2L ratios as much. If it say “REV” or revolving then it will cause score drops when balances are high.
Another negative to closing credit is that you may lose an old account that is adding to the average age of your credit scores. Average age of credit is another factor that can benefit scores. As your average age of credit gets older, more points are added to your score. Since “practice makes perfect” as a credit card holder extra points are given for those with many years of credit management. Once an account closes it can be removed after two years of inactivity. If an old account drops off your credit it can make the average age of your credit younger and reduce scores. Before you close the account check the date it was opened which is listed on the credit report. If it is an older account you will have to consider the potential cost to scores.