topic Re: Closing dormant accounts in Credit Cards

Closing dormant accounts

Anonymous — Fri, 18 Apr 2008 05:57:59 GMT

Okay! I've read over & over "not to close 'un-used' accounts' as a 'quick fix' for a lower score", in attempt to raise it...what about those cards that were 'accepted' to receive a percentage discount (while on the store premises), used it for that larger purchase, then promptly put them into the lockbox... where they've never seen the light of day since? I have several accounts like that, which are reflected as "open credit" on my report...but have been hesitant to close? Some are so old, attempted use would probably be moot, but they are still on my report?? SHOULD I CLOSE OR NOT??? My score is fine, but as a Baby Boomer, better NOW is better than better LATER!

Thanx for any solid, once-n-for-all answers! Eema

Re: Closing dormant accounts

Anonymous — Fri, 18 Apr 2008 06:27:36 GMT

Hi, Eema, and welcome to the FICO Forums!

It's not really a question of "better now" vs. "better later." The very short answer is that closing a card will never help your FICO score in the short term.

I'm assuming from your post that you've read the Closing Credit Cards thread here:

http://ficoforums.myfico.com/fico/board/message?message.uid=41393#U41393

When deciding whether to close a card, it's important to look at the question from a few perspectives. There are FICO considerations, but there are other considerations, as well, that may trump those FICO-related concerns, such as whether you find it a hassle to manage so many accounts, whether those cards have annual fees that you no longer want to pay, and so on.

Here's the executive summary on the FICO-related issues with closing a credit card:

1) A closed credit card account with no adverse information will continue to report for ten years after it is closed. During this time, it will continue to count towards your average age of accounts. Even if this card's age is younger than your current average age of accounts, closing it will not help in the short term, because even after it's closed, the tradeline on your reports is not going anywhere anytime soon. Once it falls off in ten years, it may help your FICO at that point, as long as it is newer than your average age of accounts at that point in time (i.e., ten years from now). This is unlikely, however, as most people will open at least a few more accounts within the next ten years, making it more likely that this closed credit card account will be one of the older accounts reporting ten years from now. If you open enough new accounts over the next ten years so as to bring your average age at that time to a point where it is lower than the age of the closed credit card ten years from now, then it will hurt your FICO when the closed account drops off.

2) When a credit card is reported closed with a $0 balance, the CL on that card is immediately removed from your revolving utilization calculation. All else equal, lower total CL means higher utilization, which generally means a lower FICO score. This happens immediately when the card reports as closed.

3) Although not strictly speaking a FICO concern, if you are not using a card at all, closing it yourself will prevent the issuer from closing it due to inactivity. An "account closed by creditor" notation does not affect your FICO score, but it does not look good on manual review.

I hope this helps answer your questions.

Re: Closing dormant accounts

RobertEG — Fri, 18 Apr 2008 06:45:37 GMT

I Echo, Echo, my mentor, Cheddar...

I just learned today that I lost my oldest account on my Credit Report, an account that goes back 25 years. Gone from both my oldest and its affect in my avg history to boot.

Why did I lose it? I had a divorce 10 years ago, at which point I promptly closed all my open credit accounts, and just opened new ones. I did not know then that the account would undergo a magical David Copperfield and arbitrary disappearance from my entire credit history ten years after its closing date. So wallah, I lose the account, both as my oldest, and in the mix for my avg history.

Message Edited by RobertEG on 04-17-2008 11:45 PM

Re: Closing dormant accounts

Anonymous — Fri, 18 Apr 2008 06:52:54 GMT

RobertEG wrote:

I Echo, Echo, my mentor, Cheddar...

Ha! If that's the case, then my condolences.

Re: Closing dormant accounts

Anonymous — Fri, 18 Apr 2008 13:46:51 GMT

Short answer, do NOT close dormant accounts.....I made that mistake several years ago. I guess I wanted a "clean" report, with only my open accounts showing up. Big time rookie mistake. Otherwise, I'd have an open Discover card with 21 years of history now on all CRA's, continuing to age.

There is NO benefit for closing these types of retail cards. Most of the time, they do not close them on you and continue to report them to the CRA's. Let the sleeping dog lie, leave it alone and let it age.