4. Closing Old Credit Card Accounts
Many people assume that closing unused credit cards will improve their financial situation and boost their credit score. However, this decision can sometimes have the opposite effect. Older credit accounts contribute to the length of a person’s credit history, which is another important factor used by lenders when evaluating creditworthiness.
A long credit history shows lenders that an individual has experience managing credit over time. When someone closes an older credit card account, especially one that has been open for many years, the average age of their credit accounts may decrease. This can slightly reduce the credit score because the borrower appears to have less experience with credit.
Closing a credit card can also affect credit utilisation. If a card with a large credit limit is closed, the total available credit decreases. As a result, the remaining balances on other cards may represent a higher percentage of the available credit limit, which can negatively affect the credit score.
In many cases, it is better to keep older credit cards open, even if they are not used frequently. Making small purchases occasionally and paying them off immediately helps keep the account active while maintaining a longer credit history. This approach can strengthen the overall credit profile and reassure lenders that the borrower has a stable and responsible credit track record.
