Should paid off accounts be closed?

This depends on whether this was an installment loan or a revolving debt with an available credit limit that still remains. Once the installment loans are paid they reflect no remaining credit available and thus should be closed. However, your credit scores are a direct relation to your balance - credit limit ratios. As a result if you close an account that has an available credit limit it will raise this ratio and will effect the scores negatively.

?$5,000 balance on cards / $20,000 total credit lines = 25% balance to credit limit ratio

However, if you closed an account that accounted for $10,000 of that limit…even if you don’t need it…here is the result:

$5,000 balance on cards / $10,000 total credit lines = 50% balance to credit limit ratio

As you can see, this raises your debt ratio and is viewed as additional risk solely by the scoring system and can bring scores down rather drastically. My advice is to leave the account open. If it is an account you want to close you would be better off establishing a new account to replace it prior to closing?the open?account.

All mortgages and non revolving debt should be closed and show as closed on the report once the balances are paid. Occasionally, escrow and title companies drop the ball on this and old mortgages show up on title years later. They can be removed by providing proof they were paid but could be a real hassle if that proof is unavailable. Anything you payoff that is reported on the credit report should be retained for 7 years, or until you have proof that it was removed from record (title report on your next refi, or a credit report showing CLOSED).

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