By Greg Vogel
It’s actually never a good idea to close accounts that are already open. There are two main lines of thought with this.
The first is that 15 percent of your FICO score is your credit history and the average age of your credit file. Once you close accounts, they generally only stay on your credit report for 10 years (positive accounts), so at the end of that 10 years, the positive history from that account will drop off of your credit report. Imagine you have 10 credit card accounts open now and you close all of them. Nine years from now, all of those accounts will be adding positive points to your score because of all the great credit history. However, if at year 10 they all drop off, you lose all the credit history and essentially start over. That can cause a big drop in the average age of your credit file, and in turn, your credit score.
The second reason you shouldn’t close accounts has to deal with your utilization ratio, or the ratio of your revolving account balances to limits. The ratio factors into 30 percent of your FICO score. If you close a revolving account, you lose the available credit limit on that account, and it makes your utilization ratios look worse.
For example, if you have two credit cards—each with a $5,000 credit limit—and one has a $1,000 balance, your utilization ratio is 10 percent. Now if you close one of the cards and still have a $1,000 balance on the other, your utilization ratio jumps to 20 percent. The higher this ratio gets, the more it hurts your score.
Of course, it’s not a good idea to go OPEN a ton of accounts either. Doing this can damage your score equally as well. But, if you already have a ton of open accounts, the damage is done and your best strategy from here is to keep them open and active.
Greg Vogel is a Consumer Credit and Debt Advocate. He is a FICO and credit reporting expert with the goal of putting himself out of a job through creating awareness and education about the exploitative nature of the Credit and Debt industry. Wellness Credit advocates for consumers in the credit world and repairs credit to raise FICO scores.