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More About Closing Credit Card Accounts and Your FICO Score


One of the most common questions I receive via my contact form is: “Can I close old, unused credit card accounts without hurting my credit score?” Most often, the answer is no. Here’s why.

The majority (an estimated 65%) of your FICO score and your other credit scores (you actually have multiple credit scores—one for each credit bureau), is based upon two things: Your payment history and your utilization.

It’s easy to understand how payment history affects your FICO score. Pay on time; your score goes up. Pay late; your score will sink faster than the Titanic. Understanding debt utilization is trickier, and it’s where keeping old credit card accounts open as long as possible comes in.

Your Debt Utilization Ratio

Your debt utilization ratio is figured by dividing how much debt you have by how much total credit you have (i.e., the credit limits on your cards.) The lower, the better.

If you have no debt and several credit cards open, your utilization ratio is 0%. Have $10k in credit card limits and $9k in a combined balance? Your utilization is 90%. Sometimes, you can even have a utilization score of more than 100%, which will dramatically lower your FICO score. This can happen if:

  • You close a credit card account that still has a balance
  • Your credit card does not report your credit limit to credit bureaus (some don’t!)

Why You Want to Keep Old Accounts Open

Even if you don’t use an old credit card account, it can help your credit score by adding to your combined credit limit and, therefore, lowering your utilization score.

If you have just two credit cards open with a combined $5k credit limit and have a combined balance of $2,500, you have a 50% utilization ratio, and your FICO score may be suffering for it. If, however, you have two more credit cards with a $2,000 combined balance, you are using only $2,500 of $7k available and have a debt utilization ratio of 36% (better than 50%). Closing those old credit card accounts will certainly cause your FICO score to drop. (As a rule of thumb, try never to exceed 35% utilization. Keeping it under 20% is better, and under 10% even better).

A Final Note About Closing Old Accounts

There’s one final reason that closing old, unused credit card accounts may hurt your FICO score: The longer an account has been open, the more it helps your credit score (even if you’re not currently using it). Closing the oldest credit card account you have on record can reduce the length of your credit history, further hurting your score.

It’s your call: If the idea of open but unused credit card accounts really bothers you, then by all means close them. It’s silly to be a slave to your credit score, and if you continue a patter of long-term responsible credit use, your score is bound to soar to new heights. That said, if you are trying to get your score in the best possible shape in the near-term, it is better to keep those old accounts open.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. I’ve read all about utilization lately, but I want to know how a mortgage affects that. I had great credit before I took out a mortgage. My credit report says that my mortgage is credit that is available and used, so my utilization as sky-rocketed. Now, my credit score is good but not as good as it was. I haven’t done anything to damage it at all, so I can only conclude that it’s related to my utilization. Is that right? If so, I think it’d be good to include this little mortgage detail when discussion utilization.

  2. Jennifer, I think you may be right. It’s an area I need to research a bit more. But what I think happens is that when you take out a big installment loan (including an auto loan, or a mortgage), your utilization will shoot up and your score will dip. Then, as you pay off that loan, your utilization score drops.

    In essence, the starting amount of the installment loan is your credit limit, and as you pay it down your utilization drops. This doesn’t seem fair to treat these accounts exactly the same as revolving credit, so they may score it differently, but I’ll bet it does factor in. Anybody know more?

  3. Just something I thought I heard…doesn’t credit history usually only go back 7 years? so if you close a credit card that is say 10 years old, that you no longer use and still have one that is 7 years old would your length of history be affected?

  4. What about closing a line of credit on an ING checking account? I would like to close my ING checking account – but it has a large line of credit associated with it that shows up on my credit report. Would that hurt my credit score?

  5. My oldest credit card (20 years) has a super high rate (20+%) and a high limit ($20,000). I currently have a balance on it. I applied for a credit card with 0% balance transfers but it would only give me a $2,000 line, I’m assuming because the high credit card limit is so high. When I next get a low transfer offer from another existing credit card, i am going to transfer the balance that way. I hate to close my oldest account, but I feel like the limit ties up getting credit with a better rate? Should I just close it and take my FICO licks?

  6. Now I am worried–I paid off two cards when I sold my house and immediately closed them. I am currently paying on two cards right now. I wish I had kept the other two open just to have a better score!

  7. I just moved close to $4000 in credit card debt to a debt consolidation loan, which is an installment loan, for a far lower APR. I’m wondering if this will affect my score positively. Since the limit on this CC is $4000, does this mean that my utilization between these two accounts would go from ~100% to ~50%, since I now have $8000 worth of credit. Or is there some other way to measure this?

  8. Christine says:

    I am 26 year old homeowner, with a fairly small amount of credit card debt. I have approx. 38K available to me with a total balance of 700.00 due. Since turning 18 I have opened several store credit cards and have one major credit card (I closed a major card and one store card about 3-4 years ago). I would like to closes some of these accounts, but fear my FICO score will drop dramaticly. On top of this I recently veiwed my Experian credit report and found an apartment I had co-signed on for a friend(no longer in touch) had a $150.00 balance go to collections. I was never notified of any balances due or being sent to collections, and am wondering what would be the best solution for me. I do not mind paying this debt, but have been told that it may just be better to wait for it to come off my report. What would you recommend I do to better my credit score as we would like to be able to refinance our home within the next year or so and want my FICO to be as high as possible

  9. Thanks for the great article! I have a specific question that I’d like answered, if possible. I have several unused CC accounts, perhaps with $100K of available credit and $0 balances. I’d like to get a new card because all of the old cards’ introductory rates have shot up and I’d rather use a card with 0% on purchases/balance transfers, etc. I have just such an offer in my hand right now. However, before opening another CC account, I want to know if it will hurt my credit score. The card will only be used from time to time for business expenses amounting to a fraction of the total available credit (ie. less than 25%) and will be paid off in its entirety after my work reimburses me for my expenses (within a month). Please adivse. Many thanks in advance! Noah