Impact of Canceling PayPal Credit on Your Credit Score
Many users wonder about the consequences of cancelling their PayPal Credit account, particularly concerning how it might affect their credit score. In this article, we will explore the potential impacts and provide clarity on this matter.
Effect on Credit Score When Canceling PayPal Credit
When you consider canceling your PayPal Credit account, you might be concerned about how it could impact your credit score. There are several potential impacts to be aware of:
Credit Utilization Ratio
Cancelling your PayPal Credit account could increase your credit utilization ratio. Your credit utilization ratio is the amount of credit you are currently using compared to your total available credit. A higher ratio can negatively impact your credit score. If you close an account, you may find that the amount of available credit increases, thereby raising your utilization ratio.
Length of Credit History
Another factor is the length of your credit history. Closing an older account can reduce the average length of your credit history. This can negatively affect your credit score, as lenders generally prefer longer credit history.
Credit Mix
If PayPal Credit is your only installment account, closing it could lead to a less diverse credit mix. Lenders and credit scoring models view a varied mix of credit types as a positive attribute. Therefore, closing such an account could affect your credit score.
Before making a decision, consider your overall financial situation and whether closing the account aligns with your financial goals. If you are concerned about your credit score, it might be wise to consult with a financial advisor or a credit counselor.
No Impact on Credit Score If PayPal Credit is Not Reported
On the other hand, if you have a PayPal Credit account by Bill Me Later, there is often no impact on your credit score when you cancel it. Here is why:
No Tradeline Reporting
PayPal does not report “PayPal Credit” as a tradeline account. This can be verified by reviewing your credit report. Experian, for example, provides free access to the Experian report and FICO score based on the Experian data.
When you close a “PayPal Credit” account, it will have NO IMPACT on your credit report or score because it is not reported. Keeping the account open will not improve your credit score for the same reason.
Credit Pull and Collections
PayPal actually conducts a credit check when the account is opened, even though they do not report the account as a tradeline. This can be misleading to users. It is important to ensure that any balance is cleared when you cancel the account to avoid potential issues.
PayPal Credit Card by Synchrony Bank
To avoid confusion, it is crucial to understand the difference between PayPal Credit and the PayPal Credit Card issued by Synchrony Bank. PayPal Credit Card is a tradeline account, which means it is reported to your credit. In contrast, the PayPal Credit service by Bill Me Later is not reported as a tradeline account.
Note that if you have a delinquent “PayPal Credit” account, PayPal does turn over the account to collections. However, “PayPal Credit” does not report late payments, as it is not reported as a tradeline account.
Conclusion
The impact of canceling your PayPal Credit account on your credit score depends on several factors. It is important to understand the nature of the account and how it is reported to credit bureaus. Whether or not it will affect your credit score can be determined by reviewing your credit report and confirming the reporting practices of PayPal Credit.