A reader wants to remove some old, rarely used credit card accounts from her credit report. Our expert tells her why that’s not always a good idea.
Dear Credit Score Report,
How do I get those old credit cards that have not been used in years off of my credit report? — Brooke
Closing an old credit card account will get it removed from your credit report, but it’s a slow process — and one that’s not necessarily good for your credit.
In order to get a card removed from your credit report, it first needs to be closed by the bank or borrower. Then you must wait, since that account may remain on your credit history for a decade. That means as a borrower, you simply “cannot ‘remove’ a credit card from your credit report,” says Steven Katz, spokesman for credit bureau TransUnion. “A closed account with negative information will remain on a consumer’s report for seven years. One with no negative information will remain for 10 years,” Katz says.
But years of patience don’t mean you’ll necessarily be rewarded with a higher credit score. In fact, an account closure could cause your score to fall. “The consumer may want to think twice before closing her longest standing accounts, particularly if they have always been paid in a timely manner, because those accounts are a positive part of her credit history that will ultimately be removed from the report based on their closure,” Katz says.
The damage to your credit score, however, may happen much faster. “In the short term, it’s also important to note that closing revolving credit accounts can increase credit utilization, particularly if the account closed had a high limit with little or no balance being carried,” Katz says, referring to the ratio of revolving balances to credit limits. “Credit scoring formulas do not look favorably upon high credit-utilization ratios,” he says.
The exact damage to your credit score depends on how significantly that ratio changes. As an example, say you have five cards each with a credit limit of $2,000, giving you a total credit line of $10,000. Imagine also that you have $3,000 in debt spread across two of those cards. That would give you an overall utilization ratio of 30 percent. Then, three accounts with zero balances are closed, leaving you with $3,000 in debt and a total credit limit of just $4,000. That change would produce a new utilization ratio of 75 percent ($3,000 divided by $4,000), leaving you much closer to maxing out your available credit. Expect your credit score to fall in response.
Perhaps that possible outcome will change your mind. But even if you decide to leave those unused cards alone, your banks may not: Moody’s Investors Service reported in September that among the actions lenders are taking to protect themselves from losses, banks have been seriously trimming credit lines for unused cards. “Issuers cut credit lines substantially over the past two years, but a large portion of those cuts were inactive accounts,” Moody’s analyst Jeffrey Hibbs told industry publication PaymentsSource. So if you continue to let those old cards lie dormant, the banks may decide to close them for you. To prevent that from happening, dust off that old plastic and put a small charge on it now and again, making sure to always pay the balance in full each month.
Still, if you’re determined to remove those old accounts from your credit reports despite the dangers, here’s the abbreviated version of how to protect your credit score when canceling a credit card:
- Pay off your debts. Getting balances to zero will help prevent scoring damage that can result from a change in your utilization ratio. (Zero debt divided by any credit limit will always equal zero.)
- Correct errors on your credit reports. Look for any mistakes on your credit reports, such as cards you’ve never carried or inaccurate address information, and get them corrected.
- Be selective. Rather than closing all your oldest cards, choose just one or two — such as those with annual fees — for cancellation. If your heart is set on canceling several cards, try and stagger those closures, waiting six months to a year before repeating.
- Increase your other limits. Place a call to customer service and request limit increases for the cards you plan to leave open. If granted, those increased lines can help guard your utilization ratio.
- Contact your card issuers. For the cards you want removed from your credit reports, confirm that your card balances are zero and then let them know you want the accounts closed.
Then, as noted earlier, you’ll need to wait. In the meantime, keep up good borrowing habits by always paying your bills on time, keeping debt levels as low as possible and opening new accounts only when necessary.
Using that approach, even if you shed some old accounts, you’ll continue building a positive history for those cards that remain open.
See related: Canceling a card can hurt your credit score, To preserve credit score, don’t leave credit cards unused, How to cancel a credit card, Decade-old credit mistakes shouldn’t appear on your report