Improving Your Credit Score:  Should You Close Old Accounts?

Many people are under the mistaken belief that closing accounts, particularly credit card accounts, will help boost their credit scores.  This is not true. 

Once you open a credit card account, any damage you do to your credit rating is done.  Closing the credit card account a month or even a decade later isn't going to improve your credit score one bit.  In fact, closing credit card accounts will probably lower your credit score.

When you close a credit card account you shut down the amount available for use on the credit card and consequently, the total amount of credit you have available.  This means you are now using a higher percentage of available credit on credit cards that are still open since your debt to available credit limit ratio has changed.  In most instances, this lowers your credit score.

In addition, when you close a credit card account you've had for a long time, the credit card issuer will stop reporting your payment history to your credit report.  This means that your credit history being reported is of shorter duration, which can also lower your credit score, particularly if you are a younger person with a short credit history.

Instead of closing old credit card accounts, it would be better if you paid them off, did not run up big balances on them, and kept the accounts open.

Don't open and close credit card accounts when you have plans to apply for a mortgage loan in the next few years.  You want your credit score to be as high as it possibly can be to save thousands on your mortage loan and the way you do that is to (1) pay all debts on time as agreed; (2) pay down debt; (3) use credit wisely. 

Opening and closing credit card accounts could potentially lower your credit score enough so that your monthly mortgage payments on a $150,000 mortgage loan are $200 or $300 per month higher than they could have been.
Credit Credit Rating  >  Closing Accounts
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