Should I Close My Old Credit Card Accounts?


So you are trying to get your credit in order. Naturally you may think getting rid of as many accounts as possible can only be a positive thing...right? Wrong.

Your credit score is comprised of many factors: how many kinds of debt you have, on-time payments, available balance, number of accounts, borrowing limits, oldest line of credit and so on. If you are looking to increase your score taking sudden drastic action toward only one of those factors will not be enough and can do more damage than you think.

One of the biggest factors in determining your score is how long your oldest line of credit has been open. The older the line the better, this shows that you have an established credit history. Though you may be able to consolidate balances and pay off credit cards you shouldn't close them because that could remove a long-standing account from your report which can actually lower your score.

Additionally a large part of your score is determined by the ratio of how much you owe to how much credit you have available. If you owe $2,000 and have a total credit limit of $50,000 you are in great shape. But if you close unused accounts you are also getting rid of some of that available credit. So that $50,000 drops to $30,000 and increases your debt/borrowing ratio, lowering your score.

What you should do instead of closing accounts is pay them off! Getting rid of debt is the fastest way to a higher score. If you want to consolidate consider transferring balances to one credit card (preferably the one with the lowest interest rate) and tackling it all together. Leave those other accounts open and balance-free (if there are no fees) and cut up the cards.