Ask Kim
Don't Close Unused Accounts
Should I close unused credit accounts and have them removed from my credit record?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
November 3, 2003
I got my credit report and noticed that it lists car loans and mortgages that were paid off long ago. It also includes credit card accounts I don't use anymore. Should I contact the companies, close the accounts and have them removed from my record?
If the information about the loans is accurate, leave it on the record. "If you paid off your old loans on time, they show a good credit history," says Maxine Sweet, vice-president of consumer education for Experian, one of three major credit bureaus. "You don't want to lose that."
But if you find entries in your record that are wrong, contact both the lender and the credit bureau to correct it. "In fact, write all of the credit bureaus to make sure that it isn't incorrect in other places," recommends Nancy Ness Judy, spokesperson for Myvesta, a credit-counseling firm.
As for those dormant accounts, it is probably more trouble than it's worth to close them. "The old wisdom held that you should close unused accounts because if you had the credit available, it appeared that you might go out and use it," says Sweet. "But a more significant factor is the debt-to-limit ratio." Say, for example, you have five credit cards, each with a $10,000 limit. If the balance on all of your credit cards totals $5,000, your debt-to-limit ratio is 10%. But if you close four of those accounts, your debt-to-limit ratio rises to 50%. That could look bad to a new creditor.
For more information about your credit record and your credit score, see Fair Isaac's MyFico Web site, run by the company that developed the credit scores most lenders use.
