Welcome! You'll find a lot of great advise here. Start off by reading the Credit scoring 101 thread and it will become obvious as to why it is not a good idea to close accounts with low balances. Look for Utilization
How is my score calculated?
-35% affects Payment History. Meaning any lates; collections; charge offs; bankruptcies; judgments; liens or the such will hurt the score. All is time based, the older the information the less it is contributing to the scores.
-30% affects Utilization. It is best to have several accounts with low balances distributed then it is to have fewer accounts maxed out. To figure utilization: Balance (divided) by Credit Limit = percentage. Lower then 10% recommended per account, this is one of the fastest means for increasing the over all credit score.
-15% affects Established History. The longer you maintain open accounts with creditors the better. When first starting out of course this is not easy; but this is where getting added as an Authorized User to another persons established credit comes in best. Remember that the contributor must have an account that has long history; clean payment record; high credit limit; and low balance. Also need to check with the creditor to insure that they have a policy to report authorized user accounts to all three major credit reporting agencies.
Note: Authorized user accounts are the best way to go; since you are not legally responsible for the debt rather than Joint or Co-Signer accounts. Also, if this account starts to report negatively; these accounts are usually easier to remove from the credit reports by either contacting the creditor and requesting termination of the relationship; or disputing through the CRAs.
*NOTE* FICO will no longer calculate AU accounts starting in Sept 2007 for one credit reporting agency, with the other two following suit in 2008. You now need to be a joint account holder to reap the benefits. More info:
http://ficoforums.myfico.com/fico/board/message?board.id=ficoscoring&thread.id=4008
Note: You will eventually want to drop relationship with these accounts as your own credit improves and you want to apply for major loans like mortgage. Reason for this, is that the mortgage lenders commonly make the mistake of figuring in these accounts to the debt to income ratios which can hurt your approval.
-10% affects Inquiries. Don't apply for credit unless you know you can get it or that you need to get it; unnecessary credit inquiries are going to hurt the scores - especially if your over all credit file is small to begin with.
Tip: When applying for credit pull your own credit report first (this is a soft hit and won't drop your scores). With credit report in hand go visit your local banks or credit unions. Show them the reports; and don't allow them to pull a credit report of their own unless they can say for sure that you will be approved, this way you save your self unnecessary pulls on your credit report if they decline you. If they say yes, you are approved, then they will need to pull credit report to seal the deal.
Mortgage & Auto industry has special rules for inquiries: all applications for credit resulting in pulled credit reports within a 14 day period of time will only count as one inquiry & will be suppressed from affecting credit scores for 30 days. So if you plan to go shopping for a mortgage or a car, do your research first picking what companies you want to apply with and do this all within a 2 week period of time so that the scores are not affected too much.
-10% affects Mix of Credit. Use different types of credit (revolving; installment; auto; mortgage...) evenly.
Also remember the advice which a lender gives you is productive for getting a loan; but not always good for the credit scores. If they tell you to consolidate and close accounts be careful how you go about this, most peoples compliance usually results in dropped credit scores. You are shrinking your overall available credit limit verses your balances... so remember you don't want to hurt the utilization by consolidating and closing accounts behind you.
