Is Your Credit Score Negatively Affected When Closing out Accounts on a Credit Report?

The average American consumer had 3.5 open credit cards as of 2008, according to the 2010 "Survey of Consumer Payment Choice," conducted by the Federal Reserve Bank of Boston. This is often in addition to other accounts like car financing, miscellaneous loans and mortgages. You can close credit cards and other accounts if you wish to reduce your available credit, but this affects your credit score.

Description

You have three credit reports, which are individually compiled by the Experian, Equifax and TransUnion credit bureaus. Your files at each bureau show your current and past accounts, including opening dates, balances, credit limits and timeliness of payments. Closed accounts, like most items, stay on your reports for 10 years, according to the Experian website. Everything on your credit reports figures into your credit score, although older accounts are outweighed by your most recent financial activities.

Negative Effects

Closing credit accounts negatively affects your credit score in two major ways. According to the MSN Money website, credit scoring models compare your available credit with your currently owed balances. An unused credit card with no balance provides a credit line to offset your debt on other accounts. The ratio shrinks if you remove that credit line from your records by closing the card. Closing accounts also stops their history. This reduces your score because older accounts look good on your records.

Considerations

Your credit score is influenced most strongly by your loan and credit card payments, which make up 35 percent of the total, according to the MyFICO scoring website. Your owed balances account for another 30 percent, while the length of your history only makes up 15 percent of your score. You can offset any damage caused by closed an account if you concentrate on making on-time payments on all your remaining accounts and keep your overall debt load down.

Prevention

Prevent a negative effect on your credit history by keeping your oldest credit card accounts open. The Credit CARD Act, a federal law, forbids banks from charging inactivity fees, according to Bankrate website, but they can close infrequently used accounts. Involuntary closure looks bad on your credit reports. Consumer advocate Clark Howard's website recommends using the old card occasionally for purchases you can quickly pay off. Using them keeps the accounts active, and helps your score by generating positive entries on your credit reports.