While it may seem like a breath of fresh air to get rid of old, unused credit cards or bank accounts to clean up your credit history, it's important to be aware of the impact that closing old bank and credit card accounts can have on your credit score. Loqbox has you covered with everything you need to know before you start any financial spring cleaning.
Firstly, let's look at how credit scores are calculated. Your credit score is a number that represents how creditworthy you appear to a lender. Your credit scores are only viewable to you, and they are based on factors such as your payment history, credit utilisation and the length of your credit history.
Credit scores are generated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion.
If you don’t know your credit scores (yes ‘scores’ plural, each CRA calculates your score differently and uses different systems to score you with!), you can check them for free and without impacting them with these recommended services:
ClearScore (uses Equifax data)*
Credit Club (uses Experian data)
Credit Karma (uses TransUnion data)
*For transparency, we wanted to let you know that ClearScore pay us (a small commission) if you sign up for them using this link.
Should you close old credit card accounts?
Perhaps not! If you’re thinking about closing old credit card accounts, while it may feel freeing to clear unused cards, it can actually have a negative impact on your finances.
How come? Well, one of the biggest factors affecting your credit score is your credit utilisation rate - that is, the percentage of your total available credit that you're currently using.
If you close an old credit card account, you could reduce your total available credit. That can increase your credit utilisation rate and potentially even lower your credit score. This is especially true if you have high balances on your other credit cards, as your overall debt-to-credit ratio could shoot up!
Using 1%-25% of your credit limit each month is ideal to ensure your credit score is positively affected by your spending behaviours.
Something else to think about when you’re closing an old credit card account is the length of your credit history. The longer you've had credit accounts in good standing, the better it looks to lenders. If you close an old credit card account, you could be shortening your credit history and potentially lowering your score.
Assess the pros and cons of closing old credit cards
If you’re reading this article, chances are you’ve been asking yourself “should I close my old credit card?” but this answer comes down to weighing up the pros and cons.
If the account has annual fees or high interest rates, it may be worth closing it to save money in the long run. But if it's an account that you've had for a long time and it’s done well for your credit history, it might be better to keep it open.
If you do cancel any cards, choose the newer ones first. Older ones can shorten the age of your credit history and damage your score.
Does closing old bank accounts affect credit scores?
Not directly, no. Information about your bank account generally isn’t included on your credit report because it’s not thought of as credit. So closing your bank account shouldn’t affect your credit score.
But if you close your bank account when you’re overdrawn, you could find that this does have an impact. If you leave your bank when you’re still within your overdraft, and you don’t repay that debt, you could find that it’s passed to a debt collector.
Debt collectors can then report your debt to the CRAs and this can really harm your credit score! If you do want to close a bank account, make sure that the balance is cleared and that you cancel all automatic payments.
Does closing old bank accounts and credit cards really affect credit scores?
Yes, closing old accounts can have an impact on your credit score but it depends on your individual financial situation. It's worth noting that the impact of closing old accounts may not be immediate or dramatic. Credit scores are calculated based on many factors.
Additionally, if you have a strong credit history in other areas, the effect of closing an old account may be minimal. Remember, managing your credit responsibly and maintaining a positive credit history are essential for achieving your long-term financial goals.
If you want help navigating financial systems and products, check out Loqbox Learn for tips and advice.
How long do old accounts stay on credit reports?
If it’s an active account, then potentially for the rest of your life! The aim of the credit-building game is to show long relationships with the accounts that you hold that show you can use credit responsibly (paying back on time, every time) will be doing wonders for your credit score.
How to remove old accounts from your credit report
Typically, if you haven’t used a credit card for some time, the issuer may choose to close your card for you.
But if you’ve recently checked your credit reports and found some old accounts that you’ve already closed and are no longer active, you can have these removed by contacting the bank or credit card issuer and asking them to update this with the credit reference agencies. You should then see this take effect within a couple of months.
If however, you’re closing it because you’ve missed a payment, that information will stay on your credit report for six years, after which it should no longer show.
How to boost your credit score when it’s been impacted by closed accounts
OK, so maybe it’s too late and your credit score has already been impacted by closing an old bank or credit card account. Now what?
Don’t panic! There’s a proven way to build your credit score. Get started with Loqbox Spend for our quickest results. Our members have seen an improvement of 125 points in six months of using Loqbox Spend on average (even more if it’s used in combination with our other great credit-building tools).
We’ll report your responsible credit usage to Experian, Equifax and TransUnion just by making your £2.50 a week membership payments - it’s as easy as that!
Improvements to your credit score are not guaranteed.