Conventional wisdom is that if you are not using an account, you should close it. But this does not take into account how your credit score is calculated. Closing accounts can never help your score; it will often hurt it. Shutting down credit accounts will actually lower the total credit available to you and this is a third of your credit score.If you have an account that charges annual fees and you don’t use it, then you should close that account for sure. Also, closing newly opened accounts (perhaps you signed up for that charge card at the department store?) is going to do more good than harm. But the old standby credit cards you have rarely used but have no annual fee – leave them be.
When your credit score is calculated, the bureaus add up all your available credit (your credit limit on all your credit cards), then they compare that do the amount of credit you are using (the total charged on them). You want to keep a ratio of about 30 to 50% of available credit outstanding. Below or above this and your score drops! So if you close a few old accounts, you could actually have your credit score drop without having done anything!
If you close old accounts, they may stop reporting, which can shorten the length of time your history shows in the bureau. This will also lower your score. You want to keep a LONG credit history on file to help bump up that credit score.
So, your rule of thumb should be this – if the account doesn’t cost you anything, leave it alone. If there is a fee involved, consider the overall health of your credit score and whether or not you are getting any use of the account. If you would like a free snapshot of your credit, we would be more than happy to give you a hand at Consumers Auto Warehouse.
If you need our help, just give us a call at 877-972-2769 or send me an email personally at ajwiley@cawcawcaw.com. We are located at 537 Richmond Road in Staunton, VA just off I-81.
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