With all the news these days about identity theft, it’s important to examine your credit report for errors at least once or twice per year. If you’ve been using credit for, say, 10 years or more, the odds are high that you’ll see older accounts still listed on your reports, even though you haven’t used those accounts for several years or more. This commonly happens when you purchase items like furniture, stereo equipment, or appliances through a store’s financing plan. You may have long since paid for the goods in question and never used that account to finance anything else, yet the account still shows as active on your credit file. The typical consumer’s reaction is to request via the original creditor or the credit bureaus that such older accounts be deleted. But don’t be so hasty. This could be a potentially serious mistake.
If there is nothing negative about the credit history associated with those inactive accounts, then having them deleted is not only a waste of time, it can also lower your credit score. That’s because deletion of an older account can reduce the average duration of the accounts listed on your credit file, which might make it appear that your credit history is shorter than it actually is. Since a longer credit history is better, you could end up with a lower score after the unnecessary deletion.
Also, by removing the older accounts, you’re also deleting the credit limit associated with them, which in turn may drive up your debt-to-credit ratio. This could also have a negative effect on your credit score. So be cautious in requesting the deletion of inactive accounts that form part of the overall positive history on your credit file.
I have heard that open accounts with a zero balance
actually can hurt your credit score. Is this a myth??
In response to Heather’s question: Yes, this is a myth. Your credit
score is actually improved by having open accounts with a zero
balance, not hurt. The reason is because of the debt-to-credit ratio
as discussed in the original blog post above. Open credit lowers your
ratio of debt-to-credit, which improves your score.
Large open credit accounts with zero balance are handled by the credit reporting agency’s as a debt when considering your credit score. Even though they are not being used. To much credit can also hurt as does not paying bills on time. The logic behind the thinknig goes like this, you have two credit cards, each with 20,000 open lines of credit with zero balances. Means you could at any point in time go from zero to 40,000 in debt in one day. Making you a risk to lenders if you go above your head in what you can afford to borrow. So all open accounts with zero balances can be treated like a debt even though you have no balance.