Do you have an old credit card that you don't use? Chances are yes.
This could have been one of your first credit cards or you have a new credit card with a better rate or perk.
You now have the belief that you should just close this old account because you do not use it.
The truth is you probably should not once you see the effect on your FICO score.
The first reason why you should close old accounts is its effect on your utilization.
This second largest part of your FICO score.
It is figured by dividing your balances by your credit limits.
If you close this old account, the effect would be to lower your total credit limit.
The balances would remain the same.
This will cause an automatic rise in your utilization, which could hurt your FICO score.
To get back to the same level of utilization before closing an account, you will have to pay some debt.
The second reason not to close an old account is its effect on your credit history.
Your credit history makes up 15% of your FICO score and looks at two things.
First is the average age of all your accounts and second is the age of your oldest account.
If you close an old account you will definitely hurt your average account age.
Also, if this is your oldest account, closing would cause some serious damage.
It would then default to the next oldest account.
The third reason not to close old accounts is this account will still have an effect on your FICO score.
The account might be closed but it will remain on your credit report.
Also, your payment history will still be considered in the FICO score calculation.
So it does no good to close it as it will continue to affect your credit score.
There are reasons to close accounts, but they are usually in the extreme case.
For example if you cannot control your spending.
This would make closing an account an alright idea.
But it could just be better to cut up the card so you do not use it.
The idea of closing accounts is usually not needed.
Keep that dusty card and you might want to even use it from time to time.
This way you protect it and make sure that the card company will not close it for you.
This could have been one of your first credit cards or you have a new credit card with a better rate or perk.
You now have the belief that you should just close this old account because you do not use it.
The truth is you probably should not once you see the effect on your FICO score.
The first reason why you should close old accounts is its effect on your utilization.
This second largest part of your FICO score.
It is figured by dividing your balances by your credit limits.
If you close this old account, the effect would be to lower your total credit limit.
The balances would remain the same.
This will cause an automatic rise in your utilization, which could hurt your FICO score.
To get back to the same level of utilization before closing an account, you will have to pay some debt.
The second reason not to close an old account is its effect on your credit history.
Your credit history makes up 15% of your FICO score and looks at two things.
First is the average age of all your accounts and second is the age of your oldest account.
If you close an old account you will definitely hurt your average account age.
Also, if this is your oldest account, closing would cause some serious damage.
It would then default to the next oldest account.
The third reason not to close old accounts is this account will still have an effect on your FICO score.
The account might be closed but it will remain on your credit report.
Also, your payment history will still be considered in the FICO score calculation.
So it does no good to close it as it will continue to affect your credit score.
There are reasons to close accounts, but they are usually in the extreme case.
For example if you cannot control your spending.
This would make closing an account an alright idea.
But it could just be better to cut up the card so you do not use it.
The idea of closing accounts is usually not needed.
Keep that dusty card and you might want to even use it from time to time.
This way you protect it and make sure that the card company will not close it for you.
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