account open to help credit score
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
-- Amy Account
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.
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."