Closing Credit Accounts to Help Your Score is a Myth

 by: Michael Saunders

That statement does sound logical, especially when a mortgage broker tells you that lenders are suspicious of people who have lots of unused credit available to them. What's to keep you, after all, from rushing out and charging up a storm?

Of course, if you think about it, what's kept you from racking up big balances before now? If you've been pretty responsible with credit in the past, you're likely to continue to be pretty responsible in the future. That's the basic principle behind credit scoring: It rewards behaviors that show moderate, responsible use of credit over time, because those habits are likely to continue.

The score also punishes behavior that's not so responsible, such as applying for a bunch of credit you don't need. Many people with high credit scores find that one of the few marks against them is the number of credit accounts listed on their reports. When they go to get their credit scores, they're told that one of the reasons their score isn't even higher is that they have "too many open accounts." Many erroneously assume they can "fix" this problem by closing accounts.

But after you've opened the accounts, you've done the damage. You can't undo it by closing the account. You can, however, make matters worse. Closing accounts can hurt you in two ways:  (continued...)
Closing Credit Accounts to Help Your Score is a Myth
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About The Author

Michael Saunders has an MBA from the Stanford Graduate School of Business. He edits a site on Credit Repair and Debt Consolidation and is president of Information Organizers, LLC.

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Edited by: Michael Saunders

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