Closing a credit card usually decreases your debt ratio.
1. When you close a credit card, it reduces the total amount of credit available to you. This decrease in available credit can cause your debt ratio to increase because it affects the ratio between your credit card balances and your credit limits.
2. For example, if you have a credit card with a $10,000 limit and a $2,000 balance, your debt ratio is 20% ($2,000 balance divided by $10,000 limit). If you close this card, your available credit decreases by $10,000, potentially causing your debt ratio to rise if you have balances on other cards.
3. Having a lower debt ratio is generally considered better as it shows that you are not utilizing a large portion of your available credit, which can positively impact your credit score and financial health.
Therefore, in most cases, closing a credit card usually decreases your debt ratio.
