- July 5, 2018
- Posted by: Mindy Leisure Director of Rescoring Services
- Category: News
There are many obvious actions that can cause a credit score to drop such as making late payments, maxing out a credit card, etc. But there is one seemingly innocent action that you’ve probably never thought of that could drop a credit score by 20 or 30 points.
It may seem like a harmless thing to do to close an old revolving account that hasn’t been used for a long time, however a consumer needs to be very careful when it comes to closing old accounts that they no longer use. This is because when the account is closed you are also closing out the history. If that account has a long history you are actually doing damage to your credit score because you are losing all that history.
A lot of consumers think closing old credit cards is good because it reduces the overall debt to available credit ratio. But that’s not what the scoring models look at, they look at each account individually and the history on each account individually. It also looks better to the credit bureaus scoring models if you have several revolving accounts but only one or two with a balance. And it is important to keep one revolving balance, having none can actually hurt your scores.
Years ago the bureaus didn’t want to see a lot of open revolving accounts with no balances because that looked like you had the opportunity to use all those credit cards and run up the balances. Their thinking is the exact opposite now, they want to see several revolving accounts with no balances because they now feel that shows a consumer is responsible in their spending and even though they have the availability to use those cards, they choose not to.
Some consumers also believe that if they do have a late payment on a credit card and they close it then that late payment goes away as well or at least is not factored into the credit scores. This is not true, the late payment will continue to affect the scores. The only part that goes away is the length of time you have had the card.
If a person has an excessive amount of revolving accounts, that can increase their risk of identity theft. In that case it might not be a bad idea to close a few. However you should always close ones that have been opened most recently rather then cards you have had for a long time. That way you maintain all the history and are taking less of a chance or causing a drop in the credit scores.
There are other benefits as well to keeping your old cards open. If they have a good payment history and you do accidentally miss a payment they are more likely to agree to a one time courtesy removal of that late payment if you’re been with them for a long time. They may also be more willing to raise your credit limit or lower your interest rate if asked than a card that was recently opened.
Credit cards can be tricky and play a big role in your credit scores between the balances you carry and the history on them. You should keep as many open as you feel comfortable with, there’s really no perfect amount, but if a consumer has six or seven cards I wouldn’t consider closing any. More than that and you might want to consider closing a few. Just make sure they are the ones with the least amount of history on them in order to do the least amount of damage to your credit score.