How Do Closed Accounts Affect My Credit?

So you’ve finally decided to take charge of your credit and close those credit cards gathering dust in your desk drawer. But wait — will closing those accounts mess with your score?

As it turns out, they will. Closing a credit card account can take a chunk out of your score, shortening your credit history and reducing your available credit.

Here’s how it all works.

Credit History Matters

Clearing old or unused accounts to help streamline your finances and protect those accounts from fraud may sound like a smart idea. But it’s important to know that once an account is closed, you’ll lose the credit history associated with it in about 10 years.

Long-held accounts, like a credit card with a history of on-time payments, could be something you want to keep on your report indefinitely, since having a positive payment track record is one of the key factors creditors use to determine whether or not you’re a credit risk.

Plus, credit history, in general, accounts for about 15% of a FICO score. (You can read up on FICO scores here.) So, if maintaining or improving your credit score is your top priority, it could be better to leave the old credit card open and allow your score to rise over time.

Credit Utilization Is Key

Revolving utilization refers to the amount of your credit card limits that you’re currently using. For example, if you carry a $2,000 balance on a travel rewards card with a $10,000 limit, you’re using 20% of your credit line.

This measurement, also called your debt-to-limit-ratio or credit utilization, makes up 30% of your credit score. It measures each of your credit card accounts individually, as well as the total limits and balances of all your revolving accounts on your credit report. This is why it’s a good idea to keep a low balance on your cards, even those with a cushy credit limit.

If you’re considering closing a card but aren’t sure where your credit stands, it may be time to check your credit. You can view two of your credit scores for free each month on Credit.com.