Closing Bad Accounts Helps Your Credit Score
People sometimes do this when a mortgage broker, who by the way has an interest in selling you a loan at a higher interest rate, tells you that lenders are wary of people who have lots of unused credit available to them. Nothing could be further than the truth. This is an obvious ploy to sell you a lending product that doesn’t acknowledge your good credit.
Usually consumers are told that \unless you close your bad account there is nothing to prevent you from going out and racking up huge balances and this makes you untrustworthy in the eyes of the credit bureau. Of course while you are listening to this “good advice†you might probably be thinking, “ I haven’t blown my balance since then so why would I do it again? â€
Usually you are told you have “too many open accounts.†You will be told that having this disqualifies you from obtaining excellent interest rates. However closing any of these accounts can make matters worse in two ways. First of all
1. Closing an account t can make your credit history look younger than it is. FICO scores facto in the age of your oldest account and the average age of all of your accounts.
2. Closing accounts reduces the total amount of credit available to you make your debt to balance ration soar. Remember that the more credit you have the m ore you are able to minimize the gap between the credit you use and your total credit limits.
The reality is that closing revolving credit accounts can never help your score rise higher.
This doesn’t mean you should never ever close a credit card or other revolving account. Obviously you might want to get rid of a card that is charging you a high fee or interest rate. However the best thing to do is check your credit report and make sure that it is in the mid –700s or higher before you close an account.