Question

During the last year. John has made timely payments on three of his credit card accounts, all which have balances near the available credit limits. He did pay off a fourth credit card account. which he had for 15 years, and immediately closed it. Which of the following statements regarding John's credit score is CORRECT?

I. By immediately closing his long-standing account when it was paid off, John likely increased his credit score.
II. Having three credit card account balances near their available credit limits will in all likelihood adversely affect John's credit score.

A. I only
B. II only
C. Neither I nor II
D. Both I and II

Answer 1

Closing his long-standing credit card likely decreased John's credit score, while having high balances on three credit cards will further adversely affect it. The correct answer is option B (II only).

Step-by-step explanation:

The question is regarding the impact of credit card activities on John's credit score. We can assess the implications of John's actions on his credit score as follows:

Impact of Closing a Long-Standing Credit Card Account

Closing a long-standing credit card account can negatively impact a credit score. This is because credit history length contributes to a portion of the credit score calculation. When John paid off and immediately closed his 15-year-old credit card account, he lost a long-standing history, which likely decreased his credit score. Therefore, statement I is incorrect.

Impact of High Credit Card Balances

Maximizing credit card balances can also have a negative effect on a credit score. Credit utilization, the ratio of your credit card balances to credit limits, should be kept low. Having high balances on multiple credit card accounts means high credit utilization, which can adversely affect the credit score. Thus, statement II is correct.

Given the information provided, the correct answer to the statement about John's credit score is:

• B. II only