Ask Kim


How Closing Credit Accounts Affects Your Credit Score

Kimberly Lankford

Ditching old cards can work against you.



Over the past 25 years, my husband and I have acquired more than 20 credit cards, including several very old gas and department-store cards that we rarely use anymore. We pay all of our balances on time and have excellent credit. I would like to acquire a new card that offers a good reward program for airline miles and has a $20,000 credit limit. Will closing some of these old accounts hurt our credit score?

SEE ALSO: Will It Sink Your Credit Score?

You do need to be careful before closing any old credit cards because a major component of your credit score is based on how much of your available credit you’ve used (called your credit utilization ratio). Whenever you close an account, you lower the combined credit limit on your cards, which could make it look as if you’re closer to maxing out your available credit.

Retail store cards and gasoline cards count in the credit utilization ratio, but their limits tend to be much lower than those of all-purpose credit cards, so their impact on your utilization ratio is smaller, says John Ulzheimer, president of consumer education at SmartCredit.com. “Normally you’d be eliminating a credit limit of a few hundred dollars, maybe slightly more, and not $10,000 or $20,000,” he says. He recommends waiting until you receive the new card in the mail before closing any of the old accounts so the new $20,000 limit can be added to your utilization ratio before the other limits are subtracted.

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And don’t worry that closing old accounts could affect the length of your credit history, which is a common misconception, says Ulzheimer. “The age of the account still counts in your score, even if it’s closed,” he says. “If you choose to close a credit card, you should focus on the credit limit, not the age of the card.”

For more information about improving your credit score, see Improve Your Credit Score Before Applying for a Loan.

Got a question? Ask Kim at askkim@kiplinger.com.



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