Rebuilding Credit History: Does Closing Old Accounts Help or Hurt?
When rebuilding credit history, many people wonder whether closing old accounts is a good idea. Some believe that closing unused credit cards or old accounts can help streamline finances, while others worry it might hurt their credit score.
So, what’s the truth? Does closing old accounts help or slow down the process of rebuilding credit history? In this guide, we’ll break down how closing old accounts affects your credit, the common mistakes to avoid, and smart strategies to maintain a strong credit profile.
Should You Close Old Accounts? The Impact on Rebuilding Credit History
Before deciding to close an old account, it’s important to understand how credit scores are calculated. The FICO Score, the most commonly used credit score, is based on the following factors:
- Payment History (35%) – Your track record of making on-time payments.
- Credit Utilization (30%) – The percentage of your available credit that you’re using.
- Length of Credit History (15%) – The age of your credit accounts.
- New Credit (10%) – The number of recent credit inquiries and new accounts.
- Credit Mix (10%) – A mix of revolving credit (credit cards) and installment loans (mortgages, car loans, etc.).
Closing an old account directly impacts both your credit utilization and the length of your credit history, which can potentially lower your credit score.
Rebuilding Credit History: Why Closing Old Accounts Might Hurt Your Score
1. Reduces the Length of Your Credit History
One of the biggest risks of closing an old account is shortening your average credit age. Lenders prefer borrowers with a long and stable credit history because it demonstrates responsible credit management.
✔️ Keeping old accounts open helps maintain your credit age, which accounts for 15% of your FICO score.
❌ Closing old accounts lowers your average credit history, which can negatively affect your score.
💡 Pro Tip: If the old account has a good payment history, keep it open—even if you rarely use it.
2. Increases Your Credit Utilization Ratio
Your credit utilization ratio is the percentage of your available credit that you’re using. Lower utilization rates indicate that you are managing your credit responsibly.
Example:
- You have two credit cards, each with a $5,000 limit ($10,000 total available credit).
- You have a balance of $2,000 (20% credit utilization).
- If you close one card, your total credit limit drops to $5,000.
- Now, your $2,000 balance means 40% utilization, which can hurt your credit score.
💡 Pro Tip: Keep your credit utilization below 30% to maintain a strong credit score.
3. Eliminates a Positive Payment History
Your payment history makes up 35% of your credit score. If an old account has a good payment record, closing it means you lose a valuable credit reference.
✔️ Open accounts with positive payment history contribute to a stronger credit profile.
❌ Closing accounts means they will eventually be removed from your credit report, impacting your score.
Does Closing Old Accounts Slow Down Rebuilding Credit History?
Yes, in most cases, closing an old account can slow down your progress in rebuilding credit history. Here’s why:
🚫 It lowers your available credit, increasing your credit utilization ratio.
🚫 It reduces the average age of your credit accounts, which can lower your score.
🚫 It removes a positive credit reference, affecting your credit mix and history.
However, there are situations where closing an account may be necessary, such as:
✔️ High annual fees – If an account has high fees and you’re not using it, closing it might make sense.
✔️ Risk of overspending – If keeping the card open tempts you to spend more than you can afford, closing it could prevent further debt.
✔️ Fraud or identity theft concerns – If an account has been compromised, it may be safer to close it.
💡 Pro Tip: If you must close an account, pay down existing balances first to avoid a spike in credit utilization.
Rebuilding Credit History Mistakes: The Truth About Closing Old Accounts
When rebuilding credit history, avoiding common mistakes is key to maintaining a strong score. Here are some misconceptions about closing old accounts:
❌ Myth: Closing old accounts will remove negative marks from my credit report.
➡️ Reality: Negative marks (late payments, defaults) stay on your report for up to seven years, even if you close the account.
❌ Myth: Closing accounts improves my credit score.
➡️ Reality: In most cases, closing accounts lowers your credit score, especially if they contribute to a long credit history and low credit utilization.
❌ Myth: I should close all my unused accounts.
➡️ Reality: Keeping old accounts open helps maintain a strong credit profile. Use them occasionally to keep them active.
Best Practices for Managing Old Accounts While Rebuilding Credit History
If you’re trying to rebuild your credit history but don’t want to hurt your score, follow these best practices:
1. Keep Old Accounts Open When Possible
If an old account has no fees and a positive payment history, keep it open to maintain your credit history and utilization ratio.
2. Use Old Accounts Occasionally
To prevent accounts from being closed due to inactivity:
✔️ Use them for small purchases (like a subscription or gas)
✔️ Set up automatic payments for low recurring bills
✔️ Pay off balances in full each month
3. Lower Credit Utilization Before Closing Accounts
If you must close an account, pay off existing balances on other credit cards first to prevent a spike in credit utilization.
4. Monitor Your Credit Report
Regularly checking your credit report can help you:
✔️ Track changes after closing an account
✔️ Identify errors that might affect your score
✔️ Ensure lenders are reporting accurate information
💡 Pro Tip: Get a free credit report at AnnualCreditReport.com.
Final Thoughts
Closing old accounts while rebuilding credit history is usually not recommended, as it can:
❌ Reduce the length of your credit history
❌ Increase your credit utilization ratio
❌ Remove a positive credit reference
However, in cases where an account has high fees, security risks, or leads to overspending, closing it may be necessary. The key is to make informed decisions that support your long-term credit goals.
At Cents Savvy, we specialize in credit repair and tax resolution to help you build and maintain a strong financial future. Need expert guidance? Contact us today for a free consultation!