Why You Shouldn't Close Old Accounts (Video)
Will closing old accounts help your credit score?
Many people, when reviewing their credit reports, may notice old credit accounts that haven't been used for some time.
The natural inclination may be to close those accounts in an effort to get rid of accounts that are cluttering up your credit profile. You may even think closing these accounts can help improve your credit score. In fact, just the opposite is likely to be the case: Be careful before closing old accounts because:
- Closing old accounts can reduce the length of credit history you present to lenders. Your credit history accounts for roughly 15% of your credit score. Lenders like to see a well-established history of creditworthiness. While negative credit items typically remain on your credit report for only seven years, positive credit history will remain on your credit report indefinitely.
- Closing old accounts can reduce your debt-to-available-credit-ratio. Credit scores are higher when you have a fair amount of credit available to you, but you use relatively little of it. For instance, if you have credit cards with an average per card limit of $5,000, and are using on the average of only $1,000 per card, this is a sign to lenders that you are using credit responsibly, well within your limits, and this will help improve your credit score.
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