Are you supposed to keep credit accounts open for life?

[mark_b]

Hi guys,

I have a question about credit card accounts.

Everywhere I read people warn you to never close credit accounts as it will hurt your credit score and you will pay higher interest rates when you need a loan in the future.

However I am wondering if this is really true. If so then you must always renew and keep your accounts open? This is a little bit contradicting since another tip is to not have many credit accounts as that will also hurt your score.

In the past I opened some accounts at a young age and since then I have better accounts (much lower APR, features, promotions, etc) and I just reactivate the old ones to keep them open.

So should one keep them open for life?

I was thinking to close the old ones since those companies may send new customer offers in the future but I'm not sure if that's the smart thing to do.

Appreciate any feedback, thank you.

[MonkeyMama]

I personally never keep old lines of credit open. I have had a 800+ credit score for as long as I remember.

Not to overlook the fact that this may be important for people trying to correct bad credit, etc.

But, for me personally, I don't see the point. Every time I open a new card, I close one old one. At current I only have 1-2 years open credit (just refied mortgage AND an older card was unexpectedly closed by the bank). I see no discernable difference to my FICO score though I don't think my "length of open credit" could get much worse at this point.

[snafu]

I prefer to let CC 'lapse.' I don't activate expired cards that I haven't used for more than a year but keep several cards 'active' as they have different cycle dates and benefits. For example, one card in particular doesn't charge fees for international currency exchange.

[mcfroggin]

I would keep a few open at all times. 3-4 total is probably a good number. Depending on rate changes, new offers, etc., I do drop/add cards, but I always push to increase my credit. Sometimes all you need to do is ask.

[mark_b]

Thank you for the feedback.

So why do so-called experts advise to never close an account when it apparently has little to no effect?

I have almost decade old cards that I haven't touched in years, since their APR is like 19%, without any rewards or benefits. They were one of my first cards. The companies will not reduce the APR but gladly offer me balance transfer specials.

I believe I have a total of 8 cards; one I use, and one I'm trying to pay off and retire that one as well.

So basically 6 are open for nothing.

[JoshuaHeckathorn]

Originally Posted by mark_b

Thank you for the feedback.

So why do so-called experts advise to never close an account when it apparently has little to no effect?

It can affect both your credit utilization ratio and your length of credit history, which together account for about 45% of your FICO score. If your old accounts have an annual fee, I would recommend closing them if you're not using them anymore.

[MonkeyMama]

P.S. I personally close all my old cards so that I don't have to deal with them. Stolen credit card numbers are very prevalent in this day and age. One less thing to worry about when you physically close the accounts. Just clarifying why I prefer to close cards rather than just not use them.

The *experts* are usually lenders who also want you to act in *their* best interest. There are a lot of myths out there perpetuated by the lending industry. I see it all the time as a finance professional. (i.e. you have to have an auto loan to build good credit. False! You have to carry a loan balance to build credit. False!) I also think that no one really understands FICO (top secret formula) and so well-meaning advice is often overly simplified.

"credit utilization ratio and your length of credit history, which together account for about 45% of your FICO score" - maybe it CAN account for up to 45% of your credit score, but this is not a hard and fast fact. Perfect example. If this were universally true, my own FICO would be in the toilet, versus in the top tier.

[JoshuaHeckathorn]

Originally Posted by MonkeyMama

"credit utilization ratio and your length of credit history, which together account for about 45% of your FICO score" - maybe it CAN account for up to 45% of your credit score, but this is not a hard and fast fact. Perfect example. If this were universally true, my own FICO would be in the toilet, versus in the top tier.

I'm merely paraphrasing the information FICO provides about its own model. Of course, there are a lot of other variables in the mix, so closing old cards will have different effects on everyone, especially those that carry balances and don't have a lot of available credit from other cards.

[wincrasher]

Length of time of your accounts plays a factor in your score.

At some point, there is a diminishing return - if you had 8 old accounts and one new one, then closing one of your old accounts would have little effect.

But if you had just two, one old and one new, then closing the old one for a new one could cause a big swing in your FICO score.

Your number of accounts can also have a positive effect on your score. As others have said 4 or 5 accounts should give you a good result. Above that may just not benefit you - but it doesn't hurt you either, from a scoring perspective.

That is why experts say to keep open your account. But they also say that if they are costing you money, it is OK to close accounts you are not using. Sounds like conflicting advice, but it's not really.