Paying off a credit card or loan can feel like a massive weight off your shoulders, especially if you’ve been working hard to repair your credit. But once that final payment clears, the next question often is: Should I close old accounts or leave them open?
If you’re trying to rebuild your credit score, the answer might surprise you.
The Case for Keeping Old Accounts Open
Your credit history is a key factor in how lenders assess your reliability. One of the most important parts of your credit score is your length of credit history, in other words, how long you’ve had credit accounts open. The longer and more stable your credit history, the better it looks.By closing an old account, especially one in good standing, you’re essentially removing a valuable part of your credit story. That can lower your average account age, and as a result, potentially drop your credit score.
Credit Utilisation: Another Big Factor
Another part of your credit score is something called your credit utilisation ratio, this is how much of your available credit you’re using.
For example, if you have two credit cards with a $2,000 limit each and you’ve paid them both off, you’re using 0% of your $4,000 limit. But if you close one of those cards, your available credit drops to $2,000. Suddenly, any new spending could increase your utilisation and make your credit score dip.
So in many cases, keeping the account open can actually help your credit, as long as you’re not tempted to overspend.
When It Might Make Sense to Close Old Accounts
While there are clear benefits to keeping accounts open, sometimes it just makes sense to shut them down. You might consider closing an account if:
- It charges an annual fee and you no longer use it
- You’re tempted to rack up debt again
- You’re managing multiple cards and want to simplify
If you do decide to close a credit account, just make sure it’s fully paid off and that there are no hidden fees or charges before you do.
Tips Before You Close an Account
- Check your credit report to make sure everything’s been reported correctly
- Redeem any remaining rewards or points before closing
- Call the lender to formally close the account and ask for a confirmation in writing
- Monitor your credit score afterwards to track any changes
Closing an account after paying it off might feel like the right thing to do, after all, it can feel satisfying to close the chapter on a debt that’s now behind you. However, when it comes to your credit score, that instinct may actually work against you. In many cases, it’s better not to close old accounts, especially if they don’t come with annual fees or ongoing charges. These older accounts contribute positively to your credit history and overall credit utilisation, both of which play a big role in how lenders assess your financial reliability.
Keeping an old account open, even if you’re no longer using it regularly, can quietly boost your credit score in the background. It shows a longer credit history and lowers your overall utilisation rate, both of which help build a stronger credit profile over time.
That said, your financial wellbeing should always come first. If having access to a paid-off credit card or loan account makes it harder to control your spending or causes unnecessary stress, then it might make sense to close old accounts for peace of mind. Just make sure you understand how the decision could affect your credit file. Weigh the pros and cons carefully and act in a way that supports your long-term financial goals.
If you need tailored advice or access to specialist bad-credit lending options, get in touch with our team today and we’ll help you take the next step.
