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Should I close out aged credit card accounts
Should I close out aged credit card accounts?
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Closing out aged credit card accounts can positively and negatively impact your credit score and overall financial health. Here are some factors to consider before making a decision:
Pros of Keeping Aged Credit Card Accounts
Credit History Length:
Impact on Score: Credit scoring models generally view longer credit histories favorably. Closing older accounts can shorten your average credit history, potentially lowering your score.
Credit Utilization Ratio:
Available Credit: Keeping aged accounts open increases your total available credit, which can help lower your credit utilization ratio (the amount of credit you use relative to your total available credit). A lower ratio is better for your credit score.
Positive Payment History:
Account Age: A history of on-time payments on these accounts can contribute positively to your credit profile.
Cons of Closing Aged Credit Card Accounts
Reduced Available Credit:
Utilization Spike: Closing accounts will reduce your total available credit, which could increase your credit utilization ratio if you continue to carry balances on other cards.
Potential Score Drop:
Shorter History: As mentioned, closing older accounts can shorten your credit history, negatively affecting your credit score.
Loss of Rewards or Benefits:
Rewards Programs: If the card offers rewards, benefits, or perks that you still use, closing it means losing those advantages.
When to Consider Closing Accounts
High Fees: If the card has an annual fee and you rarely use it, it might make sense to close it.
Low Usage: If you have accounts you never use and are unlikely to use in the future, closing them might simplify your finances.
Credit Issues: If an account negatively impacts your credit (e.g., high interest rates or poor terms), it might be worth closing, especially if it’s not benefiting you.
Recommended Approach
Evaluate Your Accounts: Review each aged account’s terms, fees, and rewards.
Consider Your Goals: If you plan to apply for significant credit (like a mortgage) soon, it’s often better to keep aged accounts open until after your application.
Monitor Your Credit: If you decide to close an account, monitor your credit score to see how it affects you.
Alternative Options: Instead of closing, consider asking the issuer for a product change to a no-fee card to keep the account active without incurring costs.
In most cases, it’s advisable to keep aged credit card accounts open to maintain a healthy credit profile. However, if specific circumstances warrant closure, ensure you understand the potential impacts on your credit score and overall financial situation. If you’re uncertain, consulting with a financial advisor can provide tailored guidance. If you have further questions, feel free to ask!