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I am preparing to buy a house in about a year. A few years ago my credit score was in the low 600 on a good day. I applied for and had several low balance cards (Discover, Capitol One & Credit One) as examples. Over the years I have picked up several other better cards. Chase freedom for example. Now that credit score is running around 720 ish I have aqquired the cards that fit my needs (AMex Platinum, Chase Sapphire, Savour, Hilton Aspire, and my Fidelity Card. These seem to have a good mix of cash back and travel awards for me. My question is I now have 18 credit cards. Many that I will never use. I wanted to close most of them. However, I am rreading that I will lose the positive credit history associated with it. I am not concerned about the short term affect on my credit score. I am wondering the impact long term if I close many of these accounts. I am also wondering how lenders will look at them when it comes time to apply for mortage. I have a 3% utilization ratio due to the many cards and several with high limits. Any advice on closing these accounts or the long term affect on my score. Thanks,
Welcome to the forums! As long as there is no major impact to your overall utilization (i.e. closing cards would cause it to go above 8.9% or 28.9% where there are scoring penalties) and it doesn't cause you to be reporting balances on 50% or more of your cards, there would be no short- or medium-term effects.
It's usually a bad idea to close your oldest account (I closed ALL of my oldest ones many years ago before I knew better), but any accounts that you close now should still remain on your credit reports and factor into your Average Age of Accounts (AAoA) for up to 10 years. At that point, you may or may not experience a drop in your AAoA, but as long as you don't go overboard with new account openings in the mean time, any effect should be minimal.
If you have dead weight, no harm in closing it now. If you have cards with annual fees that you have no use for, certainly close them.
@Cardiacki169 wrote:I am preparing to buy a house in about a year. A few years ago my credit score was in the low 600 on a good day. I applied for and had several low balance cards (Discover, Capitol One & Credit One) as examples. Over the years I have picked up several other better cards. Chase freedom for example. Now that credit score is running around 720 ish I have aqquired the cards that fit my needs (AMex Platinum, Chase Sapphire, Savour, Hilton Aspire, and my Fidelity Card. These seem to have a good mix of cash back and travel awards for me. My question is I now have 18 credit cards. Many that I will never use. I wanted to close most of them. However, I am rreading that I will lose the positive credit history associated with it. I am not concerned about the short term affect on my credit score. I am wondering the impact long term if I close many of these accounts. I am also wondering how lenders will look at them when it comes time to apply for mortage. I have a 3% utilization ratio due to the many cards and several with high limits. Any advice on closing these accounts or the long term affect on my score. Thanks,
1. You will not, by closing them, lose the positive credit history associated with them. But the positive credit history isn't important, since you have equally positive credit history with the accounts that remain. Positive credit history isn't really cumulative.
2. You would, ultimately, lose the age-related benefits of the closed accounts, but only when they are removed from your credit reports. Closed accounts stay on your reports for awhile. Many forum members estimate that 10 years after closure is the norm. But there's no guarantee that they will linger that long. I had 5 closed accounts which disappeared from my Equifax reports within a year.
3. Of course closing the accounts would affect utilization percentages, so you need to take that into account. Also mortgage scores love for you to have a lot of zero balances. So having some extra revolvers with zero balances
might actually help your mortgage scores.
4. It probably would not, looked at purely from a scoring perspective, be a good idea to close your very oldest accounts, since age of oldest account is a separate, and beneficial factor. If you close your oldest account, it probably won't affect your score now, but it might affect your scores down the road when it finally drops off. The mortgage scores are the most sensitive of all FICO scores to aging. They love old.
All that being said, FICO scores aren't everything. If you have unused cards with annual fees you want to get rid of those. If you have more accounts than you are comfortable monitoring, that would be another non-score reason to close some.
Most lenders won't hold it against you that you have those accounts. Some loan officers might ask you to close a few, but that's easily done when the time comes.
Nice responses by everyone. Here is a filter or decision tree that might help you.
Reasons to close:
* Card has an annual fee
* Card is a store card that you don't have much use for.
* Card has a tiny credit limit (this is a weaker reason than the two above)
* You never use the card and find it a pain to monitor for fraud protection.
Reasons to keep open:
* Card is one of your oldest cards.
* Closing card would reduce your number of open cards to less than five.
* Closing card would reduce your number of open major cards to less than three.
* Card has a huge credit limit and/or closure could make it much harder to keep utilization low.
* Card still has a positive balance. (Never close these accounts.)
* You really love the card.
A card can fit into both categories, in which case you have to use your judgment. A card could have an annual fee but you also really like it. A card could be a crummy store card that you dislike but is one of your oldest cards. Etc. In that case you will have to balance the two and use your own judgement.
Using the guidance above should enable you to trim your 18 cards down to at least 9 or possibly as few as 7-8. The guidance should enable you to place all cards into Yes, Maybe, No piles. Then you can keep open the Maybes or look harder at whether you still might want to close a few of them.
IMPORTANT NOTE:
Any time you close an account, be sure to track it on your reports for at least a couple months and possibly check with the creditor as well, just to be sure it still has a zero balance. Extra charges can sometimes appear that can then result in reported Lates -- we regularly hear horror stories about that.
Postscript:
As far as pure scoring advantages, there are a few caveats worth considering. These are fine points, but worth considering either for fun or to make the absolute best decision:
* The mere presence of store cards does not harm your FICO scoes, but it does harm the scores used by the insurance industry. Is the harm enough to warrant closing store cards you really love? Probably not. But it is strong enough to warrant the closure of store cards that are not amoung your oldest and which you could just as easily use major cards to buy things at.
* The mere presence of auto-related revolving accounts (Pep Boys, Firestone, etc.) does not harm FICO scores but does harm your insurance scores. I'd close those unless you have a compelling reason to keep them open.
* There does appear to be a negative reason statement in FICO associated with having too many open accounts. No one has nailed down what Too Many means or what the penalty might be (probably a small one). Having a dozen cards seems to be very safe. And I would personally not use this as a reason to close a major card that is otherwise nice: no annual fee, is older than your AAoA, etc. But it could be a reason to close a borderline card if you already have a dozen others that are better.
Great points. And insurance score reasons can be ignored by residents of MA, CA, and HI, where scores cannot be used to determine insurance rates.
@K-in-Boston wrote:Great points. And insurance score reasons can be ignored by residents of MA, CA, and HI, where scores cannot be used to determine insurance rates.
Wait, what?? Insurance compies can determine your rates by using your credit score?? I live in CA, which is probably why I've never heard of this before.
@Queen_Etherea wrote:Wait, what?? Insurance compies can determine your rates by using your credit score?? I live in CA, which is probably why I've never heard of this before.
I hate to link to Credit Karma, but their explanation is actually good and easy-to-understand:
https://www.creditkarma.com/auto-insurance-score/
But, yes, in 47 states those with poor credit pay more for auto insurance than those with excellent credit. And even those with excellent credit take dings for things like having non-bankcard revolving accounts. So even if you have a FICO 08 score in the 800s, that Target card that gives you 5% off every purchase could foreseeably be costing you money on auto insurance. Strange but true.
The credit scoring models used by the insurance industry (CBIS scores) are similar to FICO's in many ways and also different in others.
Similarities:
* The credit score is based solely off of data in a person's credit report. A typical CBIS score is most likely to be drawn on EQ, with TU being a runner-up.
* Payment history derogs are bad (lates, collections, charge-off etc.).
* High CC utilization is bad.
Differences:
* FICO does not care about the size of a credit card's limit -- not in itself. You can have an 850 FICO score with three credit cards that have a $500 limit each. CBIS models in contrast look at your average credit limit and penalize you if that is below 11k (roughly).
* FICO does not care whether you have store cards, or auto related accounts (Pep Boys, Firestone, etc.). CBIS models penalize you for these.
* While FICO penalizes you some for seeking new credit (inquiries, new accounts, etc.) the CBIS models seem to be incredibly sensitive to this.
* The CBIS models penalize you if your oldest account is a loan (is this weird or what?). The CBIS models like it better when your oldest account is a credit card.
* The CBIS models care a lot about actual dollar values for loan debt and revolving debt (not just utilization percentages). It's possible that some FICO models care about actual dollar values too, but that's not known to be true.