People often consider closing their credit card accounts when they have moved onto a new card, or when they owe money to the credit card company. This is not, however, generally advisable because the information on a credit report will remain for at least seven years. This means that people gain nothing by closing their credit card accounts when they are in debt, and in fact, end up actually dinging their credit score even worse.
One reason for not cancelling a bad credit history is present is that the good credit history that a person has built up may disappear, whereas keeping a card open and active ensures that the credit card company continues to report. When an account is closed the information drops off the credit report after seven years’ time, from the date of the last reported activity. That means that if a person closes their account, eventually the credit history will disappear from that particular credit card. It is, of course, much more beneficial to have a history, even a slightly negative one, than to have none at all.
Also, when a consumer closes an account, they deprive themselves of yet another bonus; that of having both a long and robust credit history. The longer a credit history goes back, and the more credit that is packed into that history, the higher the credit score. In fact, the length of time that someone has been using credit makes up an incredible fifteen percent of their credit score, and consumers should strive to make sure any good credit history stays in their file for as long as possible.
Two other reasons for keeping credit accounts open involve the cardholder’s debt to income ratio (DTI), and the amount of available credit, both of which affect credit scores. Debt-to-Income Ratio may change since the full amount may be due once the account has been closed, rather than the minimum payment and the available credit that someone has also affects what their credit rating is.
Consumers should very carefully evaluate whether or not they would benefit from closing an account, and if nothing can be gained by closing the account, it should probably stay open.
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Tags: Accounts, Card Accounts, Credit Card, Credit Card Accounts
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