3 Reasons to retain old credit accounts

Many consumers with older, often inactive, credit accounts on their credit reports consider closing those accounts.

But think twice before closing older credit accounts if you discover any on your credit reports.

While closing old and dormant credit accounts may help guard against identity theft or keep you from paying annual fees, it can also cause your credit score to decrease.

The length of your credit history accounts for 15% of your credit score. The credit scoring formula rewards good credit habits that display a responsible use of credit over a period of time. Here are three good reasons to retain old credit accounts, even if you have to pay an annual fee:

1. Length of credit history.
Closing older accounts will cause your credit history to appear shorter and once the credit scoring model plugs in the age of your oldest account along with the average age of all your accounts, your credit score will take a dive if you no longer have older accounts to mix in the credit score calculation.

2. Total available credit.
The credit scoring formula calculates the difference between the balance of your credit accounts and your total credit account limits. Your credit scores will be higher if the difference between the account balances and credit limits is large.

Should you close older accounts, the difference instantly becomes smaller and this will ding your credit score because your total available credit has been reduced. As the gap narrows between the utilization of credit and the available credit limit, your credit score will decrease.

3. Damage cannot be undone by closing an account.
Some consumers mistakenly believe closing a credit account can get rid of negative information on that account. You may even believe closing accounts will improve your credit score. This is not true.

Negative credit account information can reported for up to 7-10 years, depending on the type of information being reported. Successfully disputing negative credit account information and getting deletions will get rid of negative credit information but closing an account will not.

And just because an account is older and perhaps even dormant, does not mean you should close it. If your goal is to raise your credit score, never close any of your accounts because you may end up hurting your credit score. In fact, should you have an older credit account consider charging small items on a regular basis and pay the balance off each month.

Demonstrating active, current and responsible use of credit will help raise your credit score. Never using an available credit card account does not demonstrate how well you handle credit and manage debt.