One of the best ways to improve your credit score — and do it quickly — is to reopen closed accounts. You know that American Express that you closed because you thought you no longer needed it? It turns out that it could be useful after all. Closing an established revolving account is one of the worst things you can do to your credit score. Deleting accounts erases established history and lowers your overall credit limits, negatively impacting your debt ratio.
Reopening an old account is helpful for three reasons. First, the scoring model looks at your debt as a percentage of your total available limits. If you have two credit cards with total lines of $10,000 with a $4,000 balance on one of those cards, your overall debt ratio is 40%. Most experts agree that the debt ratio on any individual card should not exceed 50% whereas the debt ratio on all revolving accounts should not exceed 30%. Reestablishing old plastic can help to improve a consumer’s total debt ratio, thereby boosting credit score.
The second benefit to resurrecting old accounts comes when you make use of that plastic. Your credit score considers how long it has been since you used certain accounts. Dormant accounts do not help your rating as much as those in use. After reestablishing a closed account, go out and charge something on that account. Your FICO score will thank you.
The last benefit of renewing closed accounts concerns the length of history on that account. Generally, closed accounts are old accounts. When it comes to credit lines, older is better. The scoring system rewards established accounts with lengthy payment histories. Reopening an old account reinstates payment history, thereby boosting credit score if the associated payment history has been steady.
Remember that these strategies are designed for charge lines that were paid timely and closed on good terms. If you have an account that was paid through a collections agency and later closed, let sleeping dogs lie. The creditor probably would not reinstall the line anyway, but even still, resurrecting such an account could be harmful to your FICO score because it updates the date of last activity on that account.
Renewing a previously shut down account is not that difficult. If the account was closed on good terms, a simple phone call should do the trick.