How Long Should You Keep Your Oldest Credit Accounts Open?

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You’ve probably heard before that closing a credit card can hurt your credit score, but does that mean you have to keep your accounts open forever to protect your credit? Fortunately, the effect on your credit score depends on a number of factors, and may even be minimal. To make sure you keep your credit in good standing, it’s important to learn which factors impact your score so you can decide which accounts to keep open and which ones to close.

Why Credit Accounts Are Closed

Credit lenders may close accounts if they are inactive for a certain length of time. The amount of time will vary by credit lender, so be sure to check for that information in your credit card agreement. Lenders have a limit to the amount of credit they are able to extend, and as a business, they have to make business decisions about who to extend their credit to. They would rather lend to users who will make regular charges and incur interest on their card. After all, that is how credit card companies earn money. Closing accounts of inactive users allows them to extend that credit to new users who will utilize their credit.

How Closing Accounts Affects Your Credit Score

Your credit score is calculated using a combination of your payment history, credit utilization, credit history, new credit accounts, and your overall credit mix. Closing a credit account can negatively impact these factors, including the length of your credit history and the amount of your available credit. Having a long established credit history goes a long way toward helping your credit score. Closing an account you’ve had for years will have a bigger impact on your score than closing an account you’ve only had for a short time. Closing any account will also impact your credit utilization ratio. Any balances you have on other cards will then take up a larger portion of your available credit. Your score could also be impacted if closing an account leaves you with only a few other accounts. For example, if you only have two credit cards and a loan, closing one of those cards will have a bigger impact on your credit mix than if you had multiple credit accounts.

How to Prevent Inactive Account Closings

Since there isn’t a set standard time frame of inactivity across lenders, it can be difficult to predict when a card issuer would close the account if it isn’t being used. This information should be listed in your credit card user agreement, but it may still be difficult to keep track if you have multiple cards with different limits. Making sure you use your card regularly will help you prevent inactivity cancellations. An easy way to do this is by putting recurring charges, like your monthly bills, on the card so you can ensure it will have regular activity.

Why You May Want to Keep the Account Active

If you determine that closing the account will make a big impact on your credit score, you may be better off keeping the account open, and making minimal charges on it to keep it active so you can keep your credit in good standing. If you plan on applying for a loan any time soon, it might be a better idea to keep your account open. Closing an existing credit account before applying for new credit may get you stuck with a higher interest rate, or possibly not being approved for the loan at all. If you’re trying to build credit and don’t have very many accounts, keeping the account open can help you keep building your credit up to where you want it to be so you have an easier time being approved for loans or new credit in the future.

Why Closing the Account May Be Right for You

The benefits of closing the card may outweigh any downsides. You may even determine that closing the account won’t have a significant impact on your credit score. Closing the account may be beneficial for you if you haven’t had the account for very long, or if you never carry any debt to begin with, thus your credit utilization will not be affected. It could also be helpful to close an account if you feel like you have too many cards and they are becoming unmanageable or you are having difficulty paying your bills each month. It may be a good idea to close the accounts you use least often once you get them paid off. Additionally, unused credit cards carry a high risk of fraud. If you aren’t actively using the card, it may take you longer to detect fraudulent charges. You should always check your monthly billing statements, even if you think you have no balance, just to make sure no one else has been using your card for you.

It isn’t always a clear-cut decision of whether closing a credit account is the best thing for you. You need to consider the impact it can have on your credit score while weighing the consequences of keeping a card that you may not need. If the card has excessive fees and no perks or rewards, you may better off without it.

Using and keeping the right credit card for your needs will help you make the most of your credit. At Robins Financial, our credit cards work for you, which is why we offer the lowest rates possible, low to no fees, and great perks through the Scorecard® Rewards Program. View our rate information and credit card agreement for more information, or apply online now or over the phone.

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