Excellent credit makes it easier to get hired, find an affordable place to rent, and spend less on homeowners insurance in North Carolina. However, Tar Heels usually have a FICO score of fewer than 800 points.
One of the reasons why this is the case is because many of us do not know how closed accounts can damage our credit standing. Today, let us talk about the interplay between inactive credit accounts and other FICO scorecard components, so more North Carolinians can reach the excellent credit status.
Closing an Account Can Make You Appear Less Experienced
FICO takes the total age of your credit accounts into consideration when generating your score. The “older” it is, the better. The logic is that account longevity translates to experience, which helps establish your mastery of credit management.
Naturally, closing an account can hurt your reputation. This notion is particularly true if the one in question is among your oldest. As a result, your average credit account age diminishes and so as the lending industry’s perception of you.
Many Tar Heels commit the terrible mistake of closing an old account. It is often a consequence of well-meaning financial decisions. Some people cut their first credit cards to control their spending while others pay off loans ahead of schedule to save on interest. These actions can be practical on certain levels, but they are usually not well-thought-out and somewhat misguided.
Closed Accounts Still Matter
Closed accounts are not entirely useless. They do not vanish from credit reports outright. Those that have been “paid as agreed” can remain visible to creditors for a decade from the date they were closed. Nevertheless, closed credit accounts begin to carry less weight over time because FICO scores open and active ones more highly.
When a closed account gets removed from your credit reports, you also lose the payment history created through it. If it contains actual items, it can lower your credit scores. But if it is riddled with negative information, you might even say good riddance to it.
You can ask your creditor to remove a disadvantageous old account from your credit reports. You can write a goodwill letter to politely articulate your request and make some concessions if need be. If you get denied and your payment delinquency is accurate, you have no choice but to wait it out.
New Accounts Are Not Necessarily Better
When closing an old account, replacing it with a new one can knock more points off your FICO scores. Sure, you can recover the payment history you will lose, but a sharp drop in your average credit age.
As with anything, moderation is the key. Closed accounts happen because installment loans eventually run their course, but you usually have enough time to react and adjust to mitigate their impact.
Now that you understand how closed accounts affect your creditworthiness more deeply, you should pay more attention to your age of credit to use the third-most influential FICO score factor to your advantage.