Real Estate Community Forum

I have several credit cards and recently consolidated some of my cards into one credit card account. My instant reaction is to close the credit cards that have a zero balance because I wont be using them any more and I don't intend to use them in the future. However, I have been told that closing a credit card account will hurt my credit score. I was shocked when I heard this. Why would closing an account hurt my rating? I thought it would have no impact on my score. In fact, I thought it might even help my credit score because it shows I have less credit cards to use. Right? Does anyone agree?

The importance of having a credit card is it shows your credit history. When you close the credit card account, you actually close your history report with them, which will lower your FICO credit score. One interesting aspect of credit cards are those people who have a credit score of 800. One of the reasons they have a high score is they have several very old accounts. When I say old, I mean having a credit card that's 40 or 50 years old. So the bottom line is an old credit history is essential in obtaining a good credit score. So keep those credit card accounts open!

There's no good answer - mostly because the company that created the FICO score model doesn't reveal exactly how a specific action may impact your credit score.

Generally speaking, however, closing an account will most likely lower your credit score because the ratio of your debt, or the total amount you owe to all creditors, to your available credit will increase....and higher debt to available credit ratios are frowned upon by FICO.

Also, if the account in question is one of the older ones reported on your credit file, your score will go down because longevity is important in the FICO model. The longer you have had a credit account, the more data potential creditors have to evaluate your next application for credit.

So while it seems that closing an account may cause your credit score to suffer, you have to balance that with the risk that an old account you never use, but leave open nonetheless, may fall into the wrong hands and get misused...or the creditor may change terms on you...and since you're use to not paying attention to that account, you may miss it altogether.