Got so many credit cards that you can hardly close your wallet? When you have more cards than you need, it might seem smart to “clean house” and close the accounts you no longer use. Before you start cutting up cards, though, think about this:
One part of your credit score depends on the length of your credit history, and another part looks at your debt-to-credit ratio. Both of these can be adversely affected by closing an account.
If you’ve had an account for some amount of time, having it become inactive on your credit report – and eventually removed from the report altogether, which will happen after about ten years – then your overall credit history will be shorter. That can spell a drop in your credit score.
As for your debt-to-credit ratio, also known as your credit utilization rate, the more credit you have available, the better. If you carry a balance of $5,000 on the cards you use, but you have $50,000 of available credit across all your accounts, then you are using less than 30 percent of your available credit – a good thing in the eyes of the credit bureaus. However, if you close the accounts you don’t use and have only $10,000 of available credit left, you are suddenly using 50 percent of your available credit. That will negatively impact your credit score.
If you have credit cards you don’t use, and they don’t have an annual fee or a balance, then by all means take them out of your wallet and tuck them away in a safe place – but don’t close the accounts. Doing so may seem like a good thing to do, but it won’t help your credit score and may very well hurt it.