Credit Repair -- Step 13. Affect Closing / Opening Accounts Has on Credit Rating
Knowing whether or not to close or open new accounts can be tricky because you can either improve or damage your credit rating by opening or closing new accounts. Therefore, use common sense when closing or opening new accounts. General guidelines are as follows:
(1) You can improve your credit rating by opening new accounts and thus increasing the amount of total available credit you have but don't use. For example, suppose you currently have three credit cards with a combined total credit limit of $7,000 and you routinely carry a balance of around $4,000 on these cards. That doesn't look good to creditors and your FICO credit score suffers as a result. Therefore, you could improve your credit score without paying off the debt just by opening up new credit card accounts but not using them. For example, using the numbers above, if you opened up one or two more credit cards with an additional credit limit of $10,000, you would now be using only $4,000 of your total available credit of $17,000, which makes you look much better to creditors.
Note that doing (1) above is only a good idea if you already don't have too many credit cards. For example, if you currently have ten credit cards with a combined total credit limit of $40,000 and you always seem to owe $30,000 or more on the cards, opening up new accounts isn't going to help you raise your score any. You likely have too much debt. In fact, a mortgage lender might look at your credit report and advise you to pay off and close some of those accounts before applying for a mortgage because you have "too much available credit". Common sense is the rule of thumb: do not close old accounts unless you feel certain that you have too much available credit and it is damaging your credit rating.
In general, people are advised not to close old accounts as it will lower one's credit score; however, there are times when it is prudent to close old accounts even if your score is lowered a bit, particularly in the age of identity theft. The problem with old accounts, such as that Sears credit card you haven't used in decades, is that Sears might still be reporting old information to your credit report, such as the address where you haven't lived in twenty years. They might one day decide to send a new credit card to that old address, and so might other companies who obtain that address from the credit bureaus. Someone who lives at your old address could be receiving all sorts of financing offers in your name. If you notice an old address where you haven't lived in a very long time appearing on your credit report, it is likely being reported to the credit bureau by a creditor you haven't dealt with in a long time, such as would happen with a credit card you abandoned a long time ago. If this is the case, write the creditor and update your address or officially close the account.
To officially close out old accounts you no longer intend to use, write letters to the creditor requesting the account be closed and that they inform the credit bureau of this fact. Your goal is to have a notation inserted in your credit report next to these accounts that states "account closed by accountholder". A major problem you might face in doing this is that you no longer have the account number because you abandoned the account so long ago. You will need the account number to close or update the account and it doesn't always appear on your credit report in its entirety. See Sample Letters 15 and 19. One of these letters is addressed to the credit bureau asking for a subscriber's contact information (in case you have no idea who the creditor is or need your account number).
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