Should I close my old store credit card accounts?

September 16, 2008 11:55 AM

Should I close my old store credit card accounts?

I have a handful of store credit cards (GAP, J.Crew and the like) that are around 4-5 years old. I just got my free annual credit reports and all is well (minus the one 30 day past due on my old bank credit card right after college - that account has been closed for awhile at my request). But I have a bunch of these store credit accounts that I don't use at all and haven't for a few years. My credit history goes back about 12 years, including credit cards (currently paying off), car loans (all paid off), and educational loans (open for eternity, I'm sure).

I'd like to close them to simplify things, at least in my mind, but I'm wondering if I should leave them alone? We are looking to buy a house in the next few months. I know that there are complex ratios of available and used credit and length of accounts and whatnot involved in calculating your credit score. These cards all have fairly low limits.

So do you think it would be in my best interests to close these accounts or leave them alone for now as it relates to our future home-buying?

posted by anonymous to work & money (13 comments total)

Get Rich Slowly just wrote about this.

I wouldn't close them, especially if your account will be scrutinized in the near future. They help you in your balance to limit ratio and also establish a strong history of credit.
posted by ginagina at 12:01 PM on September 16, 2008 [1 favorite]

Yep, ditto, closing credit can adversely affect your credit score. I would wait a few months after your home purchase if you really want to close them. Talk with someone at your bank a few months before you get serious about buying and they can help you to prepare.
posted by Craig at 12:08 PM on September 16, 2008

Dang! @ginagina beat me to it! J D had a great article on this very subject this morning.
posted by willmize at 12:22 PM on September 16, 2008

We are looking to buy a house in the next few months

As everyone has said, wait until after you buy the house. Closing the accounts will hurt your credit score, and buying a house is when your credit score counts more than it ever will in any other situation.
posted by burnmp3s at 12:26 PM on September 16, 2008

My advice is basically the opposite. Mortgage lenders look at more than a score -- you would, too, if you were lending someone hundreds of thousands of dollars. They will scrutinize your entire credit report. My understanding is that many lenders will consider all open revolving charge accounts to be at their limit, since you could conceivably run them up right after you get the mortgage. (I imagine that this is not uncommon, what with people buying new furniture, carpet, and other improvements.) I would close all accounts you are not currently using (with the exception of the oldest) and, in addition, ask creditors to lower your limits on cards you don't use to anywhere near the limits. (But keep the limits well above twice the typical balance.)
posted by kindall at 12:56 PM on September 16, 2008

Here's another vote for the "wait until after you buy a house" route. I wrote a guest post on Get Rich Slowly (I'm also a personal finance blogger, though not as well known as JD) about what you should and shouldn't do before buying a house that might be useful.
posted by wangarific at 1:25 PM on September 16, 2008

Kindall brings up a good point regarding how mortgage lenders evaluate your credit report. However, if you're sure these store cards have fairly low limits, then I'd leave them alone. If possible, you might try to ask a mortgage broker now, before you begin looking for a house, what her impression might be.

It's great that you checked your credit reports. Mine usually explicitly states one or two things I could do to improve my credit. (During the years I didn't carry a credit card, for example, they would always admonish me to get one so that I'd show more types of credit.) However, have you checked your credit score lately? You can pay for it from myFICO, etc. This might give you an idea whether it's worth tweaking things. If your score is high enough, it may not make sense to close the cards at all.

Good luck!
posted by jdroth at 1:46 PM on September 16, 2008

Good timing on the question, considering the very top post on Lifehacker.com right now is about this. And I quote:

"If your credit card balance is zero, go ahead and close as many unused accounts as you want. As long as your credit cards are balance-free, it won’t hurt your credit score a bit. So call those card issuers and cut away."

Go for it. Cut them up. Close them. Don't give in to the temptation.
posted by joshrholloway at 2:45 PM on September 16, 2008 [1 favorite]

(Assuming they're paid off, of course.)
posted by joshrholloway at 2:46 PM on September 16, 2008

Since that top post at Lifehacker simply redirects to my site (mentioned earlier in this AskMe thread), I'll point out that the quote comes from this Bankrate article. The two lines before the one quoted here (and at Lifehacker) are these:

The best advice for a home or auto shopper is to hang on to credit lines until after you've landed your loan. "Wait until you've been approved for the loan and have the money in hand and then start closing accounts," Watts says.

In other words, wait to close the accounts if you're buying a home (or buying a car) in the near future.
posted by jdroth at 3:17 PM on September 16, 2008

"If your credit card balance is zero, go ahead and close as many unused accounts as you want. As long as your credit cards are balance-free, it won’t hurt your credit score a bit. So call those card issuers and cut away."

I'm not at all sure the above is true.

Part of one's credit score is based upon the "average length of open accounts," and another part is based upon your ratio of credit in use to credit available. Closing old accounts will at the very least not help your average length will definitely reduce your amount of available credit which will affect your ratio unfavorably if you use any credit at all.
posted by Juffo-Wup at 3:22 PM on September 16, 2008

If the powers that be are worried about your capacity for debt, they'll say so. Then you can cheerfully offer the kill off some of that capacity that you never use anyway.

At least that's how it worked for me.
posted by Kid Charlemagne at 5:31 PM on September 16, 2008

Yeah, let your broker guide you through this. Also, it's pretty simple to call up that bank that you have the ding with and try to get that resolved. I had a similar funny thing on my credit report. I called them up, declaimed responsibility (nicely) and asked for them to strike me from their books and to send me documentation that all was well. I handed copies of that to my broker. Hopefully, your mortgage person will be just as helpful as mine was.
posted by amanda at 9:55 PM on September 16, 2008