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Dear Dr. Don,
I would like to know how consumers should go about closing "open accounts," especially if one now has multiple accounts due to banks buying out other banks or creditors.
Recently, I've read on Bankrate.com that closing accounts can lower your credit score. How should one handle these unused accounts? Is there a magic number as to how many to close per month or year without gravely affecting one's good credit score?
-- Marie Multiple
 Dear
Marie,
A balancing act is involved when deciding whether to hold on to accounts you don't use (just to keep your credit score high) or to close those unused accounts.
Keeping the accounts open helps maintain a low ratio between outstanding balances and available credit lines -- that's called the credit utilization ratio. Not bumping up against your credit limits shows you're not running out of available credit. Lenders like borrowers who aren't desperate.
The length of time the account has been open also influences your credit score. Having a clean payment history on an account with a 10-year history is more valuable to your credit score than a clean payment history on an account that you've only had for a year or two.
On the other hand, every open credit line is a commitment by a lender to loan you money. A lender considering a credit application is going to look at those open lines as potential loans that can demand a part of your income. That's money that won't be available for their loan payment.
In the short-term, it's a bad idea to close accounts in an attempt to improve your credit score. Longer term, managing your credit accounts is a part of managing credit. Not holding on to cards with annual fees or cards with high interest rates can make sense.
The Bankrate feature "Cancel a card, hurt your credit score" explains that there's no magic number of credit cards you can have before it starts to hurt your credit score. By pruning away some of the unused accounts, you can free up space for a new card.
My advice is for you to review your credit reports and get a handle on the number, age and credit limits of your
open accounts. Bankrate provides the details on ordering your credit reports in the feature
"Free credit reports available to all."
Then, either use Bankrate's free "FICO Score Estimator" or pay to get your credit score from one or more of the three major consumer reporting agencies.
If your credit is in good shape (a score in the mid- to upper 700s or higher) and you don't have any immediate plans to apply for credit, feel free to cancel a credit card or two. Choose cards recently issued or those with lousy credit terms. Wait a year before repeating this process.
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