FICO score question: cancelling credit card (mortgage companies, lender, cash, companies)

[Wendell Phillips]

The more open credit card accounts you have - even with a zero balance - will adversely affect your credit score. You only need one credit card to be used as a substitute for cash or check, and for travel; and do not charge any expense that you cannot pay off in the next billing cycle.

[Moonlady]

Originally Posted by Wendell Phillips

The more open credit card accounts you have - even with a zero balance - will adversely affect your credit score. You only need one credit card to be used as a substitute for cash or check, and for travel; and do not charge any expense that you cannot pay off in the next billing cycle.

I was always told that the more open lines of credit with good payment history improved your score.

[Wendell Phillips]

No, the opposite is true. The more open credit card accounts you have, the greater credit risk posed, lowering your score.

[chet everett]

Wendell is correct in that the the more credit that you have available the greater the risk that you as a borrower can pose to lenders that you will suddenly get over your head.


moonlady is correct that having a history of good payments will improve your credit score.

The key is to find the sweet spot.

Most people that write about this (and do not have internal information that will get sued by the credit reporting / scoring agencies) agree that the MOST WEIGHT goes to SPEEDY PAYMENT -- borrowers LOVE to be paid on time! Having any "slow pays" at all hurts, 60 days late hurts worse and beyond that your score tumbles.

The second most important factor in your score is DEBT USED to CREDIT AVAILABLE. This is much tricker, as the agencies attempt to normarlize this so that if you are the kind of person that has a greater than average of amount of credit available to you but you use less than a average percentage of it that IMPROVES your score. Using more than average percentages of available credit hurts your score. Having an average of amount of credit and using an average percent of should be neutral. Having available credit below average can be neutral with otherwise good history, or negative is of large percentage is consistently used.

It is all about behavior OVER TIME. Thus if you have had a long history of using credit sparingly and paying quickly you are in good shape. (The implication too is that 'sparingly' is different for different people at different stages of life -- just about anybody who travels is going to have cards from more than one issuer, most people that shop a favorite department store or two will have that card, and this leaves aside the whole issue of non-revolving credit such that might be extended to purchase a single large item. If this is "zero percent" it would seem to be a no-brainer, but if over time a borrower does this A LOT it does end up costing the lender...)


Aside from the credit score aspect of things it is probably not real smart to have a whole bunch of "extra" credit accounts that you do not need. There is the whole other risk that that info can fall into the wrong hands.

As a general rule you want to keep the card(s) that you use the most and have had the longest.

For more detailed info it may be worth ordering an extensive report from one of the agencies once in a while -- you can generally get your FICO score as well the scores from the other agencies systems and where you rank in terms of the norms for your zip code and nationally. Of course lenders are generally only to go off the FICO, but you can infer from the comparative data whether it makes sense to trim down the credit you have or at least if you are out of whack with respect to others in your zip...

http://www.thesimpledollar.com/2008/...-cards-or-not/

[Moonlady]

Chet, thanks for that great explanation. I have a ton of open lines of credit, seldom used, and my FICO score is over 800. I've been hesitant to close some of the older ones I don't use any longer for fear that it would actually hurt my score (although I'd probably still be in the high category). I think I will take another look at some of them and get rid of a few I don't really need.

[revelated]

Don't let anyone let you believe that having open credit cards = adverse. It's false, as a standalone statement anyway.

Having open credit cards with a balance: Adverse, until the balance is paid down. The adverse reason is something like, "Too many revolving accounts with balances" or "balance-to-credit ratio is too high on bank revolving accounts". This is the reason the standard American Express card that requires to pay in full every month is almost always a positive account.

Having open credit cards with late payments: Adverse, unless they were not accurate and you dispute them successfully. Adverse reason is something like, "Too many late payments", or "Accounts reflect one or more missed or late payments".

Having open credit cards included in a Chapter 13 Bankruptcy: Adverse, for obvious reasons. Reason is something like "Accounts included in bankruptcy".

Having open credit cards that you recently opened: Adverse, because it shows as "too many recently opened accounts", effectively meaning they're not old enough to score. This only applies if you have more than two recent accounts though. If you opened one card per year, this doesn't apply. Not that I would recommend that. Reason is "Too many recently opened revolving accounts".

Having open credit cards with no payment activity reported: Adverse, because payment history is ultimately what gets scored first for revolving accounts. I've never seen this one happen, but I know it can happen.

People will constantly say, because the media wants you to believe, that credit cards are evil. They're no more evil than guns. If you can't manage your finances properly, credit cards can do you in. If you're good with money management, credit cards can help you or even improve your financial situation, especially if you are studious with them.

[Wendell Phillips]

Well, tell your bank that. Your bank will tell you what's what.

[revelated]

Originally Posted by Wendell Phillips

Well, tell your bank that. Your bank will tell you what's what.

Assuming you were referring to me...I don't have to talk to a bank. I've worked for a reporting agency. I also did customer service for MyFICO.com back in 2003. I know the game and how it's played: referring to the various algorithms behind consumer credit.

It's quite easy to test what I'm saying too, using TrueCredit. (I don't suggest that you do this unless you have nothing to lose, as it WILL damage your credit score).

• Pick a credit card that you've had for a long time, say 3 years or more.
• Note your score before the test.
• Charge it all the way up to its limit; max it out.
• Wait two months without making a payment.
• Re-run your score. It WILL change. Under the adverse reasons you will see two reasons: balance to credit ratio too high and late pays. Guaranteed.
• Pay that card completely off.
• Wait one month, then re-run your score. It'll change again. The balance-to-credit ratio entry will be gone.
• Apply for a brand new credit card with a high credit limit. Don't use the card for 6 months.
• Re-run your credit. If you haven't had any new credit card accounts for over a year, your score will increase. If you recently opened another account, your score will drop.

[Wendell Phillips]

No, you need talk to the bank - it is the bank that's lends the money.

[revelated]

Originally Posted by Wendell Phillips

No, you need talk to the bank - it is the bank that's lends the money.

Do me a favor: stop focusing on the first 5 words of every post.

I've run reports for lenders for over a year. I know how it works. Maybe in your personal experience, you dealt with a bank that was picky about open accounts; that's fine. ING Bank is one such bank who doesn't like to see too much "available credit" floating about. However, your experience is not the same for every bank.

Underwriters don't like to see available credit, but that has nothing to do with whether or not it improves your credit score by not having it there. It's just for the bank's underwriting criteria. I can tell you that if you have 5 open credit cards that you've had for 10 years without missing payments, and no balance is due, and you close 3, your credit score will drop. Period. Sure, your mortgage company will be all giggles, but your credit score will drop. That's because those positive tradelines are no longer benefiting you - thus the score drop.