Inactive Account with 0 balance and FICO

[xurlii]

I know that open account with a zero balance will contribute to a good FICO; however, what if the account has a zero balance but is INACTIVE and will remain so because you have no intention of using that account again? Is it better or worse on your FICO to close a zero balance but inactive account?

[jasen]

It's very hard to guage. Depending how many other cards you have, and the length of time you've had them, and how old this account is, etc.

If you have several other accounts with history, it may not hurt you to close this one.

If this one has been open for a while, it may hurt you to close it. The longer it's been open the moreso. Of, if you only have a couple other open accounts, it may hurt to lose an open line of credit. In a case like this you're probably better off keeping it open, and putting a very small balance on it. Just use it to buy dinner once a month or something. An open account showing 1-20% utilization brings more points on the FICO than a zero balance account.

This assumes the account is a positive on your report to start with. Start throwing in variables like late payments (especially in the last year), and removing it may not be a bad option.

[xurlii]

What if the inactive account with the 0 balance was a bank loan that has been paid off but is not being shown that it is closed but is only showing that it was paid in full? This is not a revolving acct (like a CC) that you could use again to help your FICO by low utilization of credit. So, then would it be better to close these types of inactive 0 balance accounts that you can't use again?

[Ahntara]

Revolving account = account which can be used again and again, paid in full, or paid in increments with the balance revolving over from one to month to another.

Installment account = loans for a specific amount to be repaid in specific terms. Once paid off, an installment loan IS closed. It can no longer be used.

There is no need to "close" an installment account.

[Radio_Guy]

For the best FICO, leave all positive tradelines intact...

[Methuss]

Only close a credit card with a good payment history and 0 balance if your debt-to-income ratio (another lending factor) is being dragged down as a result. Open credit lines are viewed as potential debt that can be incurred at any time. By example, if you have a $40,000 income and a $10,000 credit card with 0 balance, then 25% of your income ratio is consumed (I simplified this, but you should get the point). They have to assume you will use the available credit to its limit when considering what you can afford as future loan burdens.

[Alexander]

I know that open account with a zero balance will contribute to a good FICO; however, what if the account has a zero balance but is INACTIVE and will remain so because you have no intention of using that account again? Is it better or worse on your FICO to close a zero balance but inactive account?

Closing open accounts is never ever EVER a score builder period.

What if the inactive account with the 0 balance was a bank loan that has been paid off but is not being shown that it is closed but is only showing that it was paid in full? This is not a revolving acct (like a CC) that you could use again to help your FICO by low utilization of credit. So, then would it be better to close these types of inactive 0 balance accounts that you can't use again?

An installment account that has a zero balance is closed. Closed accounts in good standing are positive score wise and help out in two or three scoring categories:

1. Thickness of the file, the more accounts that you have, both open and closed, the better.

2. Average age of accounts.

3. If you don't have any other installment accounts on your credit reports then this account helps out with having an account in each credit card category.

Only close a credit card with a good payment history and 0 balance if your debt-to-income ratio (another lending factor) is being dragged down as a result. Open credit lines are viewed as potential debt that can be incurred at any time. By example, if you have a $40,000 income and a $10,000 credit card with 0 balance, then 25% of your income ratio is consumed (I simplified this, but you should get the point). They have to assume you will use the available credit to its limit when considering what you can afford as future loan burdens.

DTI nor income is used for FICO scoring. DTI is used for new mortgages. But you have to have a balance on a credit card that would take 10 months or more to pay of if you just made the minimum payments. Let's say I have three 25k cards for a total of $75,000 credit line and I owe $149 on one card and the minimum payments are $15 per month. The effect of the balance on my credit card on DTI is exactly zero. Auto loans are what usually whacks people when they go for a mortgage DTI wise.

It may be that having over say twice your annual gross income in unused revolving credit line might make a mortgage lender nervous and might be a score factor for them but income is not considered in FICO scoring.