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Dr. Don Taylor, CFA, Bankrate.com advice columnistKeep account open to help credit score

Dear Dr. Don,
I recently called to close a credit card account and the creditor recommended that I keep it open because I have had it for five years and it is in good standing. I have excellent credit and have never missed a payment. Will keeping this credit card account open have a positive effect on my credit score, even if I don't use it? I am interested in opening other credit card accounts that offer more benefits to me, but I don't want to have too many accounts open at once.
-- Amy Account

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Dear Amy,
There's a balance between credit capacity, credit history and outstanding credit.

The myFICO Web site presents the following graphic about the component parts of your credit score. Since myFICO is a subsidiary of Fair Isaac Corp., a company that develops credit scoring models for Equifax, Experian and TransUnion, it knows what it's talking about when it comes to credit scores.

 

Pie chart

Keeping the account open with a zero balance is a plus for length of credit history and amounts owed. In fact, myFICO.com doesn't recommend closing accounts as a short-term strategy for raising your credit score. If you're in the market for new credit card(s) that better meet your need for credit, then keeping the account open makes sense, at least for now. You can shop for your new credit cards using Bankrate's credit card search feature.

Credit card companies use risk-based modeling, including your credit score, to determine your credit line and the interest rate they'll charge on account balances. Applying for credit creates a credit inquiry on your credit report. That inquiry stays on your report for two years but is only used as a factor in computing your credit score for one year. Applying for a couple of credit cards in a short period of time can lower your credit score, so you should consider doing it one card at a time, ideally with a year between cards.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."

Bankrate.com's corrections policy -- Posted: March 16, 2006
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