John – I’ve heard you shouldn’t close old credit card accounts because older accounts are good for your FICO scores and closing them can hurt your scores. Is that true?
Answer – That is absolutely not true. You’ve identified what I believe is the 2nd most common myth in credit scoring, right behind “employers using credit scores.” The myth you’ve identified is that when you close an account you lose the benefit of the age of that account. That’s incorrect. A 10 year old account is still 10 years old whether it’s open or closed. Further, closed accounts still age. So, if you opened a credit card account 5 years ago and then immediately closed it…it’s still a 5 year old account and is being considered as such as long as the account is on your credit reports.
I posed this question to Craig Watts from FICO and he confirmed what I already knew from my time at FICO.
“When assessing length of credit history, the FICO score considers the origination date on all accounts on the credit report, open and closed. So an account that was opened for just one year 10 years ago still counts 10 years toward length of credit history in the eyes of the FICO Score, everything else being equal.”
Now, closing the card might have a negative impact to your scores because of the impact to your revolving utilization percentage. You’re eliminating some amount of unused credit limit from consideration in your FICO scores and THAT can lower your scores.