Credit Score – Should You Close Old Accounts

Do you have a credit card that has not been used in a long time? It does not even make it to your purse or wallet. It is just left at home. Should you close this old account that never gets used? What effect would this have on your credit standing and more specifically your credit score?

Your credit score has different areas on importance and each has their own weight in your score. How much you owe makes up 30% of your credit score. This is found be dividing your balances by your total credit limit and is commonly called utilization. Considering your utilization, closing an account can have a negative effect.

Let’s consider an example of you have three different credit cards. The first one and the one you want to close has a zero balance and has a credit limit of $3,000. On the second card you have a $2,000 balance and it has a credit limit of $4,000. The last card you have a balance of $2,000 and a credit limit of $6,000. To figure your utilization, you divide the total of your balances, $5,000, by your total credit limit, $13,000. Your utilization would be 38%. The effect of closing the first account would lower your total credit limit by $3,000 and would make your utilization 50%. This is a pretty large jump and it will definitely have a negative effect on your credit score.

Another factor to consider when closing an old account is its effect on your credit history. Your credit score puts a weight of 15% on your credit history. In determining your credit history two factors play a role, the average age of all your accounts and the age of your oldest account.

If you close an old account you could negatively skew the average. Second, if you don’t know which of your accounts is your oldest then you run the risk of closing this account. This could be a definite negative effect on your credit history and your credit score.

The point is you need to know the implications of closing an account on your credit score. There are some reasons to close an account. For example, if you are struggling with controlling your spending habits and closing an account will save you from yourself. Even with that example it could almost be better to cut up the card so you don’t use it.

If you are still considering it, you should get a copy your credit report. On it you can see the date an account was opened as well as the balances you are carrying on each account. You then can make sure you are not closing your oldest account. Also, you can calculate your utilization to see the effect of closing an account.