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  • Cancelling Credit Cards

    I'm trying to boost my credit score from good (currently at 743) to great (>760) in anticipation of applying for a mortgage later this fall. I opened a credit card about 1.5yrs ago, which is bringing down my average credit history. I have 3 other credit cards, which are all at about 9 years old. I know canceling credit cards can hurt your credit score, but it seems that canceling my youngest card would actually boost my credit. Am I correct in this thinking? Thank you for any responses and insight.

  • #2
    Doesn't cancelling a credit card lower your credit score for only 3 months? Someone may correct me if I'm wrong.

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    • #3
      Such a small part of the equation that it wouldnt matter, more likely to hurt as your ratios are more important from a weighting perspective. In all honestly, a >740 move to 760s isnt going to change anything.

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      • #4
        The difference between a 743 and a 760 might put you one tier higher, possibly the highest tier, depending on the lender, and get you a better rate.  Some lenders don't care and treat an 850 the same way they do a 725.

        Some scores factor average account age, some simply look at age of oldest account.  That's a pretty small factor.  The bigger factor like Zaphod mentioned is that you're going to affect your credit utilization by closing off an open line of credit, which will increase your utilization, which will lower your score.

        Finally, depending on which bureau the lender uses, and which type of score the lender selects from that bureau, you probably have a higher score than what you're seeing with a lot of credit score trackers.  It seems like whenever I have my credit pulled by a lender, my score is a lot higher than what I thought it was.

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        • #5


          It seems like whenever I have my credit pulled by a lender, my score is a lot higher than what I thought it was.
          Click to expand...


          Agreed. My bank and cc companies give my score each month, and every hard credit pull comes back higher.

          Also, I left a 10 year old credit card open for a while to "keep my score" high, then decided that was just too risky, I never used the card, didn't carry balances on anything except a mortgage and student loans, and just closed 2 of them. I don't recall any dip. (I didn't check it though).

          The ratio's (balance to limit) is key though. For example, lets say I have a credit card with a limit of 10k. I put ~$5000 on it this month. The statement cycle date is on the 3rd. I pay the 5k off by the 2nd, which means my credit card company reports that I owe "$0" on the card, not 5k, even though I have many weeks past the 3rd to pay the 5k. That improves the score  - and the mortgage companies will then assume you don't pay anything on the card, so your debt to income ratio is better.

          My 2 cents.

           

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          • #6
            I would reduce down to 1-2 cards just to simplify your life.

            Is there something specific that happened that dropped your score? I would have expected high 700's unless you were late on multiple payments at some point over the past few years (not judging just asking) or have over-borrowed (two big car loans, large credit card balances, etc) but it's all smoke and mirrors as to what exactly goes into calculating a credit score. I'm glad I'm at a point in life where I don't care anymore.

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            • #7
              Agree with Adventure.

              1) Utilization is probably the most important consideration.  Between now and whenever you apply for your mortgage, do whatever you can to minimize the value in the numerator and maximize the denominator.  If the card you plan to close has a large limit, this can hurt you.  2) Paying off the balance just before the end of the statement period also makes sense, since credit cards report statement balances.

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              • #8


                Is there something specific that happened that dropped your score?
                Click to expand...


                And... I check www.annualcreditreport.com every 4 months (3 free per year...) to keep an eye on things. Found an issue due to student loans, etc... Took a month to get corrected. It had dipped our score 80 points.

                Might be worth a check, if not already.

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                • #9
                  All good points, but not necessarily applicable.

                   

                  1. The credit card I'm cancelling actually has no pre-set spending limit. Cancelling it wouldn't decrease my denominator, to borrow rb6p's phrasing. There's no credit limit with it to report and account for in my overall credit limit when calculating my utilization.

                  2. Pistolpete, I hadn't heard of cancelling a credit card bringing down your score for only 3 months. No one corrected you. Have you heard this somewhere else.

                  3. ITEngineer, I thought my score would have been higher too. I have no "red flags," have faithfully paid my student loans, auto loan, etc. I always pay off my credit cards and never carry a balance. My utilization is usually 10-15%. It's very frustrating, frankly.

                  4. Adventure, I'm pulling a free credit score just to double check there isn't incorrect information on my file, though credit Karma doesn't show anything.5. I'm getting ready to go back into fellowship with a wife and 3 kids. Even if my score jumps from only low 740s to low 760s h

                  5. I'm getting ready to go back into fellowship with a wife and 3 kids. Even if my score jumps from only low 740s to low 760, that just might get me a slightly better rate on a loan and I'll take all the financial help I can for that fellowship year that I can.

                   

                  Thank you to everyone for your time and insight. Additional comments welcome.

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                  • #10


                    5. I’m getting ready to go back into fellowship with a wife and 3 kids. Even if my score jumps from only low 740s to low 760, that just might get me a slightly better rate on a loan and I’ll take all the financial help I can for that fellowship year that I can.
                    Click to expand...


                    We closed on a mortgage late last year, and the top 3 the lenders we spoke with needed >719 to get the best rate.


                    1. The credit card I’m cancelling actually has no pre-set spending limit. Cancelling it wouldn’t decrease my denominator, to borrow rb6p’s phrasing. There’s no credit limit with it to report and account for in my overall credit limit when calculating my utilization.
                    Click to expand...


                    Ah, a charge card. Right, can't really factor into the utilization, but overall "debt owed" on statement date will.

                    I have also called or requested a credit increased on my credit cards online. Go from 5k-10k, and the ratio looks very different.

                    GL with the fellowship!!

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                    • #11


                      I have also called or requested a credit increased on my credit cards online. Go from 5k-10k, and the ratio looks very different.
                      Click to expand...


                      That's what I was going to suggest as well.

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                      • #12
                        Careful -  I'd think twice about upping the credit limit if it requires a "hard pull".  This will lower your credit score by a small amount for a few months.

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                        • #13
                          Rb6p - good point. I just asked for (and was given) a credit increase of 19 % on my credit card. They wouldn't say if it would cause a credit pull.

                          I'll check my score and credit report in a few weeks and see what happens.

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                          • #14




                            Rb6p – good point. I just asked for (and was given) a credit increase of 19 % on my credit card. They wouldn’t say if it would cause a credit pull.

                            I’ll check my score and credit report in a few weeks and see what happens.
                            Click to expand...


                            Again, thats small potatoes compared to the potential increase in credit capacity. Everyone thinking about working on their score needs to go to the FICO site or some credit explaining blog and learn the formula and general weightings. Do everything to knock out the low hanging fruit.

                            If someone had low overall credit capacity, opening a new card or increasing limits can substantially change their score. I increased my credit score over 100 points in 2 months when I figured out the game. I think I opened 2-3 cards and increased limits on others, paid down balances and you're done. Its very simple when you figure it out.

                            I never get concerned about pulling or opening new cards, it just has such a small effect that it doesnt matter. Before you know it your credit will be over 800 and a little pull still wont take the shine off your borrowing status.

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                            • #15
                              I signed up for my first credit card as a college freshman so I could get a free hat from my favorite baseball team. Holy cow I must've had sucker written all over me.

                              That was 1998-9. I never closed the card but barely use it. I periodically ask for credit increases and keep it as an emergency card. It's been open so long I am sure my score would drop temporarily for closing it, but Discover has never given me anywhere close to the limit I've now got on other cards ($20-30k) so it won't make a huge dent in my credit.

                              I really don't see a reason to close yours. Make sure nothing is linked to it for automatic charges, hide it in the house as a backup, setup alerts so you know if any transactions occur for fraud prevention, and keep getting the limit increased when you can. I don't see the downside in keeping it open. It seems doubtful that the 1.5 year history going away would be outweighed by the decreased debt/income denominator. The latter is probably more important for the scores (this is speculation).
                              An alt-brown look at medicine, money, faith, & family
                              www.RogueDadMD.com

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