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Lots of consumers are concerned about their old credit card accounts, judging by the flurry of questions generated by a recent column. In that column I explained that closing old accounts can hurt your credit score and I recommended keeping old accounts open, preferably with a zero balance.
Many readers had questions about that, some of which I'll address here, relying primarily on information from Fair, Isaac, the California company that compiles FICO credit scores.
First of all, a little explanation is in order: A credit score is not the same as credit approval. A credit score is an evaluation of your credit behavior and is one of the factors most lenders consider when deciding whether to grant credit and what interest rate to charge. Some companies also use credit scores to screen job candidates or applicants for insurance policies. Some lenders will make a decision to approve credit based entirely on your credit score. However, a lender also may consider factors such as your income, assets and overall debt levels.
Old accounts help establish the length of your credit history and increase the average age of your accounts, a plus for your score. Also, it is better to owe a small amount on several cards than a big amount on one. Going over 50 percent of your credit limit on any card is negative. As a result, when people consolidate debt on a new card and close their old cards, they can hurt their scores.
Q. Won't lenders deny you credit if you have a large amount of unused available credit on open accounts?
Some might. Theoretically you could go on a spending spree and charge your accounts up to the limits, overextending yourself. However, it is much worse to have accounts that actually are charged to the limit than to merely have the theoretical possibility of that happening. Lenders are less concerned about available credit on old accounts than they are about the potential for problems with recently opened accounts.
Q. I recently got my credit score, which was 834. Part of the "negative impact" on this score report was "too many active credit cards." I have 26 cards. Should I cut up the credit cards and close the accounts I never use or keep them?
Twenty-six cards is more than you need, but they can't be hurting you much because a credit score of 834 is about as close to perfect as you can get. And since you already qualify for the best interest rates, there is no benefit to improving your score.
If you are concerned about this, I suggest that you pare your accounts down to a dozen or so, being sure to keep open your very oldest accounts and some of the bank cards.
The average person has seven credit cards and four installment loans, such as mortgages, car loans and student loans. There is no precise number of accounts that is "too many." The older you are, the more accounts you can have without any adverse impact on your credit score.
Generally credit scores of 720 or higher are excellent while those below 600 are poor. Between those two numbers, efforts to improve a score can pay off in lower interest rates.
Q. If you don't use an account, won't the credit card company close it whether you ask for it to be closed or not?
Maybe. It depends on the policy of the credit card issuer.
Q. If you are keeping an account open with a zero balance, wouldn't it be a good idea to request a reduced credit limit? I have a $25,000 credit line that I was thinking of reducing substantially. How might that action affect my credit score?
Raising or lowering the credit limit will have no impact on your credit score if you have a zero balance and never use the card. If you use the card, a high credit limit is better because your balance will be a smaller percentage of your available credit.
Q. I have some accounts I closed and paid off more than five years ago, but they still show up on my credit report. Do they stay permanently on my record?
Most negative information stays on your credit report for seven years (bankruptcies for 10 years), so those accounts will be disappearing from your record soon.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.