The Credit Score Information Site

Credit Score Myth 2: Closing Accounts Will Improve Credit Score

The premise behind credit scoring is simple. Credit bureaus monitor all your financial records and check whether you have been handling your finances well. Any changes in your credit behavior are duly noted and can be the basis for your credit score. For example, if you suddenly applied for several credit cards, your credit score might be affected negatively as it could interpret this sudden change as a sign that you are in need of money.

 

On the other hand, having too much available credit does not automatically mean that it is bad for your credit score as long as there are no irresponsible behaviors. Some people are lead to believe that having too many accounts can hurt their credit scores. Without really understanding the reason for this belief, they decide to close these accounts.

 

This is a not only an irresponsible move but also very risky. There are two ways how closing accounts can hurt your score.

• Closing your accounts, specifically older ones can make your credit history appear younger. As you may know, credit scores are influenced by how old your oldest account is as well as average age of your other accounts. If you close an account, it could affect your credit score in a negative manner. 
  
  If you close an account, you are effectively lowering your overall credit limit. This means that that gap between your balance and limit is reduced, which is actually a bad thing for your credit score.

 

Experts generally advise that you close a couple of accounts IF you have a credit score of 700 or higher. But you have to make sure that these accounts do not have the highest credit limit or among the oldest. If your credit score is not within this range, then leaving your accounts open is a wiser decision.

 

On the other hand, if you are thinking of closing your account to manage your debts better, then you should do so. At this point, your credit score should not even bother you. Another situation you might encounter that concerns closing your account is when applying for loans such as mortgages. Some lenders would ask you to close some of your accounts but you should only consider this if the lender has already made a commitment to approve your loan. Otherwise, you should not risk hurting your score. 

 

Further Reading: See below for more information on Myths About Credit Scores

Myths About Credit Sores: Introduction 
Myth 1: Boost Scores With Lower Credit Limits
Myth 2: Closing Accounts Will Improve Credit Scores
Myth 3: Consumers Can Hurt Credit Score By Checking Their Report 
Myth 4: Shopping Around For Best Rates Will Hurt Credit Score