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For consumers with very low balances, closing newer credit accounts, slowly, can make sense -- especially if the cards sport high interest rates or charge annual fees.

But having too much credit will rarely be a problem.

"In years past there was kind of a myth that said if you have just way too much credit available, you have the risk of being potentially overextended because you could access that much credit right away," Opperman says.

It's still true that when consumers go to take out a home loan, some mortgage lenders may assess the amount of credit available to them and take that into consideration when evaluating their creditworthiness.

"If someone were planning to purchase a home and it was suggested that they close some accounts, the borrowers would want to do it well before applying for a loan and a few months apart -- and make sure that the accounts that they closed did not have too high of a credit limit," Opperman says. "But in general, having a robust credit file will not be an issue."

Furthermore, only recently opened accounts should be considered for closing. Length of credit history is an important component of the credit score.

According to John Ulzheimer, president of consumer education at Credit.com and contributor to CNBC, the ideal credit customer is one with 20 years or more of credit experience -- and you want that good history on your report. Closed accounts will drop off of your credit report.

"The sweet spot is someone who has 20, 30 or 40 years of credit experience and many, many accounts to look back on," Ulzheimer says.

Let credit cards collect dust
Consumers shouldn't necessarily close their credit accounts, but burying cards in the backyard or hoarding them in a shoebox in case of an emergency also may backfire.

Creditors are loathe to let just anyone have vast sums of potential money at their fingertips. Lately lenders have taken a use it or lose it attitude -- preferably lose it.

Consumers encounter two pitfalls if a creditor closes an account for nonuse: The available credit is pared down and that account no longer contributes to their credit history.

If an open account is unused for a long enough period of time, the company can stop reporting it to the credit bureaus. If the account goes unreported, that account is not contributing to your available credit, which affects your credit utilization ratio.

The FICO score isn't an award or demerit system, but a predictive score that tells lenders what you might do in the future.

"The FICO score looks at how recently the information was reported, so, if say, a credit card trade line (credit card account) hasn't been reported in X number of months, then we will not include that information for certain calculations, basically any calculations that look at dollars," says Barry Paperno, consumer operations manager for Fair Isaac and head of myFICO.com's consumer education and advocacy.

-- Posted: Jan. 26, 2009
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