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Topics addressed on November 26, 2008:
Closing accounts when you have good credit scores
I am a 72 year old male with a credit rating of 787. I have four credit cards that I use sometimes (low or no balances carried), three gasoline cards that I never use, and six other credit cards that I never use. Should I cancel these cards that I don't use? Would my credit rating be increased?
Your credit score indicates you have a very strong credit history. Because it is so strong, you don’t need to worry too much about closing some of the accounts if you don’t want them any more, although doing so is contrary to my regular guidance.
The standard advice is to leave open any unused accounts with a zero balance that have no negative information in the payment history. The reason is that closing an account causes an increase in your utilization rate, also referred to as your balance-to-limit ratio.
When you close an open account, you reduce your total available credit limits by the amount of credit limit for that card. Your existing balances then represent a larger percentage of your total available credit. When that ratio increases, it has proven to be an indicator of greater credit risk.
For example, if you have two cards with $5,000 limits, you have total available limits of $10,000. If one card has a $2,500 balance and the other a zero balance, you have a utilization rate of 25%.
If you close the card with the zero balance, your total available limits decrease to $5,000. The $2,500 balance now represents half of your available limits, or a 50% utilization rate.
However, I suspect a change in the utilization rate will have little significant impact on your situation. You indicate that you maintain very low balances on the credit cards you do use, so closing the others probably will not result in a dramatically higher utilization rate or a significant change in your scores.
In your case, the score you received indicates there is very little risk that you will default. A slight decrease in your scores would not likely affect your ability to get credit if you want it.
So, close the accounts if doing so will give you some peace of mind or if you are concerned the cards or account numbers could somehow be lost or stolen.
To get an accurate indication of what closing your accounts might do, get a copy of your credit report and a credit score report from Experian. The credit score report provides a score and, more importantly, an explanation of the risk factors from your credit report that most affected the score.
You might find that having too many accounts open is a significant negative factor. If so, closing the accounts would be the right thing for you to do for your particular situation.
Thanks for asking.
- The "Ask Experian" team