Why You Shouldn’t Delete Old Accounts from Your Credit Report
With all the news these days about identity theft, it’s important to examine your credit report for errors at least once or twice per year. If you’ve been using credit for, say, 10 years or more, the odds are high that you’ll see older accounts still listed on your reports, even though you haven’t used those accounts for several years or more. This commonly happens when you purchase items like furniture, stereo equipment, or appliances through a store’s financing plan. You may have long since paid for the goods in question and never used that account to finance anything else, yet the account still shows as active on your credit file. The typical consumer’s reaction is to request via the original creditor or the credit bureaus that such older accounts be deleted. But don’t be so hasty. This could be a potentially serious mistake.
If there is nothing negative about the credit history associated with those inactive accounts, then having them deleted is not only a waste of time, it can also lower your credit score. That’s because deletion of an older account can reduce the average duration of the accounts listed on your credit file, which might make it appear that your credit history is shorter than it actually is. Since a longer credit history is better, you could end up with a lower score after the unnecessary deletion.
Also, by removing the older accounts, you’re also deleting the credit limit associated with them, which in turn may drive up your debt-to-credit ratio. This could also have a negative effect on your credit score. So be cautious in requesting the deletion of inactive accounts that form part of the overall positive history on your credit file.
This was very helpful. I had considered removing inactive accounts.
I do not want to lowere my score.
Thanks
Comment by Selina — June 29, 2006 @ 8:26 amGood to know. Thanks.
Comment by Sue — July 19, 2006 @ 8:53 pmAt what point do you have too much available credit, and it would be better
to close a few accounts-(newer ones)? Is there a ratio to income?
“At what point do you have too much available credit, and it would be better
to close a few accounts-(newer ones)? Is there a ratio to income?”
Income data does not appear directly on your credit report,
Comment by Charles — July 20, 2006 @ 7:10 amso there isn’t a ratio of available credit to income. Credit
score is primarily just a reflection of your payment history. The
longer the history, the better. The ratio that matters is debt to
available credit. This is why in general it does not make sense
to close out any accounts with a positive payment history. That
much said, however, it’s possible that you could be denied a
mortgage if the risk analysis showed too much available credit
against income. But that is something that could be easily handled
as part of the mortgage underwriting process. I see no need to close
out positive accounts unless a specific financing situation requires
it.
I have heard that open accounts with a zero balance
Comment by Heather — September 23, 2007 @ 10:16 amactually can hurt your credit score. Is this a myth??
In response to Heather’s question: Yes, this is a myth. Your credit
Comment by Charles — September 24, 2007 @ 10:01 amscore is actually improved by having open accounts with a zero
balance, not hurt. The reason is because of the debt-to-credit ratio
as discussed in the original blog post above. Open credit lowers your
ratio of debt-to-credit, which improves your score.
Large open credit accounts with zero balance are handled by the credit reporting agency’s as a debt when considering your credit score. Even though they are not being used. To much credit can also hurt as does not paying bills on time. The logic behind the thinknig goes like this, you have two credit cards, each with 20,000 open lines of credit with zero balances. Means you could at any point in time go from zero to 40,000 in debt in one day. Making you a risk to lenders if you go above your head in what you can afford to borrow. So all open accounts with zero balances can be treated like a debt even though you have no balance.
Comment by curly — October 11, 2007 @ 2:40 amIn response to the above comment, I need to point out that
Curly is simply mistaken here. It doesn’t work that way at all. My own
credit score is above 800, and I have numerous old inactive accounts. They
still show as open even though I have not used them in many years, and they
are all at zero balance. I have never been turned down for a loan or denied
credit because of those accounts, and I’m sure most people would agree that
an 800 FICO score is pretty good! What needs to be considered here is that
open credit is NOT considered as a stand-alone factor by the credit bureaus.
However, average length of credit history can be reduced by closing old
accounts, which LOWERS the score. Also, closing out old zero-balance accounts
INCREASES the debt-to-credit utilization ratio, which in turn will LOWER
the credit score. Anyway, readers don’t need to take my word for it. Here
is a link to an article by consumer credit expert, Gerri Detweiler, which
confirms what I’m saying here:
http://www.stretcher.com/stories/04/04aug23b.cfm
Comment by Charles — October 11, 2007 @ 11:55 am