The Value of Old Accounts
Fair Isaac rewards established credit. Old accounts, at least those in good standing, are an asset to your scores. Many people starting credit repair decide to simplify their credit life by closing accounts – only to see their scores fall. This can happen when the accounts that are closed represent a significant portion of established credit history.
The Impact Will Vary
Fair Isaac puts a stated weight of 15% on this factor, but as with everything else related to the calculation of your scores, the impact depends on the overall content of your credit. Those with considerable account history may see little or no effect from closing older accounts, while someone else with limited credit may experience a significant drop.
Closing Accounts Properly
You may be able to close accounts with no repercussion, but you must think before you act. Generally, you can close accounts without risk if you have sufficient credit left over afterwards. The best measure of “sufficient credit” is the relationship between the quantity of accounts and your scores. There is no net-benefit to having more than five revolving accounts, so you may close accounts in excess of this number. Older accounts have a positive effect, which you should keep in mind as you decide which accounts to close.
New Account Initial Impact
Conversely, as noted in the “Payment History” section of the tutorial, Fair Isaac will also lower your scores in response to the appearance of brand new accounts. Remember that FICO is designed for lenders and meant to measure the risk that you might default on an obligation. In the eyes of FICO, new accounts with no history are untested and could represent a strain on your budget.
New Account Benefits
The good news is that once FICO has witnessed your ability to manage your new debt responsibly they will start to lift your credit scores; this normally happens within four months. If you are starting credit repair and need to open secured cards the initial three to four month drop in scores may be a consideration, but the passage of time will deliver great benefits.