Why You Shouldn’t Cut Up All Your Credit Cards
Most of the time, open credit card accounts look better on your credit report than closed accounts.
Open accounts extend the average age of your credit history. It’s good for your credit score when you have older accounts.
More importantly, keeping your credit card account open can boost your credit score by lowering your credit utilization ratio (assuming you keep the account balance paid down).
New Accounts vs. Reopened Accounts
If you made the common mistake of closing a credit card like I did and you want to reopen the accounts, you could ask the credit card company to reopen the account.
However, the credit card issuer may open a new account instead of reopening your old account.
So be sure to ask beforehand whether your account will show up as a “new account” on your credit report or if the old account’s status will change to “open.”
Best case scenario: the credit card issuer agrees to send you a new card with the same account number as the card you closed.
How Open Credit Card Accounts Help Your Credit Score
To a lot of consumers, common sense says otherwise, but credit cards marked as “open” on your credit report will usually help your credit score more than a closed account.
Many people think a closed or paid off account, looks better in their credit history.
Here are several reasons why you’ll want to keep open credit card account or two on your credit report:
- Payment History: Payment history has a big influence on your credit score — 35 percent of your FICO. With an open account, you can rack up the on-time payments even if they’re for a small amount. This is an easy way to help your credit score soar.
- Available Credit: A card with a balance of $1,000 that you aren’t using shows creditors you have credit to spare. Scoring models often refer to this as your credit utilization ratio. Open accounts with low balances lower your credit utilization and raise your score. Available credit comprises 30 percent of your FICO score.
- Average Age of Accounts: Open accounts can continue adding to the average age of your credit accounts. Closed accounts pull down your average account age. Even if the open credit card account sits unused, it continues to age. The average age of accounts comprises 15 percent of your FICO score.
Together, the three factors above comprise 80 percent of your FICO credit score, and keeping a credit card account open can help with all three!
And open accounts could even help with the remaining 20 percent of your score, at least indirectly:
- Mix of Credit (10 percent): Keeping open credit card accounts can help diversify your types of credit, especially if you already have a mortgage, an auto loan, and a personal loan or two.
- New Credit Checks (10 percent): Too many hard inquiries can hurt your credit score. When you have open accounts, you won’t need to apply for new credit which means you won’t have hard inquiries showing up in your credit file.
Here is How I Got Capital One to Reopen My Account
When I first started getting my credit life under control, I thought that closing and paying off my Capital One credit card would help my credit.
I was wrong. Closing the account caused my score to drop even further.
Since I already had bad credit, it was a huge challenge trying to get Capital One to reopen the account. I’m sure the same would be true with any other major credit card including a Chase, Discover, American Express, or Citi card.
So here’s what I did:
First, I applied for and received a secured credit card to rebuild my credit (Open Sky Secured Credit Card is the card I got in case you’re wondering).
I kept up the payments for one year. At the end of the year, I called Capital One’s customer service number and asked if they would “kindly consider reopening my account based on the recent steps I have taken to improve my credit score and the accounts I have in good standing as of right now.”
They checked my credit report. A few weeks later I received a new Capital One credit card with the same account number as my old card.
Guaranteed Unsecured Credit Cards for People with Bad Credit
The card number was the same, but the credit limit was only $500. You have to start somewhere, so I started using the $500 credit line.
As a cardholder, I made on-time payments for two more years. Then I called customer support again and asked for a credit line increase, which they granted.
Reopening this account helped jump start my journey to better credit. It wasn’t easy, but it was worth the time.
You get the point: Patience and a willingness to take small steps will get you there. Just stick with it!
Other Ways to Build Credit Before Reopening an Old Account
If you’ve closed a credit card account and you regret it — but your credit score won’t let you get a new card — here’s where to start:
- Secured Credit Cards: I mentioned this above when discussing my experience with Capital One. Secured cards work like a regular credit card account except you have to make a security deposit. Your credit limit will be low and you’ll have to pay an annual fee. But in return, you’ll get a chance to prove yourself to the credit bureaus by making on-time payments every month.
- Credit Builder Loans: This special personal loan guarantees you won’t make a late payment because you never receive the loan’s funds. They go into a bank account — the same bank accounts your payments will be drafted from. It’s a risk-free way to build a solid credit history.
- Co-signed Loans: Asking a friend or family member to co-sign will help you get approved for a new credit card which you can then use to start building a solid payment history. Your co-signer would be responsible for your debt if you didn’t pay. After making on-time payments for a year or so, you can check with your old credit card company about reopening your old account.
- Pay Cell Phone On Time: If you already have a cell phone, keep paying your monthly bill on time. Assuming you don’t have a prepaid plan, keeping your cell phone plan up to date can help with your payment history, especially if you have a financed phone built into your bill.
Using one or more of these strategies could improve your credit score enough so that your old credit card issuer would consider reopening your old account.
Once your old account gets reopened and listed as such on your credit report, you should start seeing even more improvement in your credit score.
Here’s the Catch: Don’t Use the Available Credit
Keeping your old credit card account open after paying it off should help your credit — and your monthly budget — but only if you don’t use up the available credit.
Too many consumers get a balance transfer card to consolidate credit card debt which can be a really good decision.
Then, they run back up the balances on their old credit cards. This just restarts the cycle and adds to your monthly debt.
Sooner or later you’ll get behind and have late payments and other derogatory marks on your credit.
So keep your accounts open to maximize your credit, but don’t use these accounts. For best results, never let your credit card accounts get higher than 30 percent of their available credit limits.
Knowing Your Credit Score Will Help Get Started
Old accounts, new accounts — it’s all guesswork if you don’t know your credit score. I recommend checking your score at least once a month.
You can see your official credit reports from Equifax, Experian, and TransUnion by visiting annualcreditreport.com, a site operated by the Federal Trade Commission.
You can also get a free credit score using apps like Credit Sesame and Credit Karma. You’ll need to confirm your Social Security number and answer some questions about your identity to sign up for these services.
If you’re like me, you’ll want to know your credit score before making personal finance changes. That way you can track the results of things like keeping your old credit card accounts open.
When you get an account reopened — or make any other changes — check your credit report to make sure the changes get recorded correctly.
The credit bureaus have a legal obligation to report data correctly. If they don’t, you’ll need to send a dispute letter.
If you need help removing inaccuracies such as derogatory marks from your credit reports, check out my article: How to Get Something Removed from Your Credit Report.
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