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rll
Posts: 3
Registered: ‎05-01-2007
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Number of credit cards

My TransUnion score recently was 784. I closed out about a dozen of old credit cards that I haven't used in a long time. To my surprise, my score went down to 777. I called TransCredit (an affiliation of TransUnion) and was told that closing out the accounts resulted in the lower score but the score would rise a little later.
 
This all doesn't make sense to me. I was simply trying to protect myself against ID theft and I got penalized for it. Can someone explain how and why the number of credit cards makes a difference in scoring?
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Timothy
Posts: 9,252
Registered: ‎03-19-2007
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Re: Number of credit cards

Utilization-  7 points, it could have been a lot worse-
 
Read the Credit 101 Thread- RTC101T

rll wrote:
My TransUnion score recently was 784. I closed out about a dozen of old credit cards that I haven't used in a long time. To my surprise, my score went down to 777. I called TransCredit (an affiliation of TransUnion) and was told that closing out the accounts resulted in the lower score but the score would rise a little later.
 
This all doesn't make sense to me. I was simply trying to protect myself against ID theft and I got penalized for it. Can someone explain how and why the number of credit cards makes a difference in scoring?



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haulingthescoreup
Posts: 28,098
Registered: ‎04-01-2007
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Re: Number of credit cards

Hi, rll, welcome to the forums! What Timothy was cryptically saying is that when you close credit cards, their credit limits are no longer available to you. So when FICO calculates your util (= utilization, total balances owed on all cards divided by total of credit limits on all cards), the same balances owed are now divided by a smaller figure, so your util goes up, and your score often drops.

If you have any balances reporting to the CRA's (credit bureaus), even if you pay them off as soon as you get your statements, then your util probably rose, and so you lost some points.

Unless CC's have fees, or they just offend you so much that you can't bear to even look at them again, or you have problems keeping on top of what's due when, there is generally no real point in closing them. Check fused's post called Closing Credit Cards:

http://ficoforums.myfico.com/fico/board/message?board.id=creditcard&thread.id=16915

And as Timothy said, please read Credit Scoring 101 (see his link.) None of this will make any sense at all until you do.
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
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Timothy
Posts: 9,252
Registered: ‎03-19-2007
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Re: Number of credit cards

I was not being cryptic- I knew you would be along to put it in plain english- Thanks HTSU

haulingthescoreup wrote:
Hi, rll, welcome to the forums! What Timothy was cryptically saying is that when you close credit cards, their credit limits are no longer available to you. So when FICO calculates your util (= utilization, total balances owed on all cards divided by total of credit limits on all cards), the same balances owed are now divided by a smaller figure, so your util goes up, and your score often drops.

If you have any balances reporting to the CRA's (credit bureaus), even if you pay them off as soon as you get your statements, then your util probably rose, and so you lost some points.

Unless CC's have fees, or they just offend you so much that you can't bear to even look at them again, or you have problems keeping on top of what's due when, there is generally no real point in closing them. Check fused's post called Closing Credit Cards:

http://ficoforums.myfico.com/fico/board/message?board.id=creditcard&thread.id=16915

And as Timothy said, please read Credit Scoring 101 (see his link.) None of this will make any sense at all until you do.


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Boscoe
Posts: 660
Registered: ‎09-11-2007
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Re: Number of credit cards

rll - Your scores only dropped 7 points due to not having a big change in UTL......in 10 years when all these closed credit cards drop off your report, you will likely see a worse drop than 7 points.....
 
This is a part of the FICO model that I totally disagree with.   A closed account should stay on the report forever, or at least allow one or two to remain on the file for scoring purposes.
 
Or better yet, use the "date file opened" for each CRA as your "oldest age" date.   The way they do it now, closing accounts hurts a little now (i.e. lower avail. credit =  higher UTL = lower score) and alot later when the oldest and avg. age of accounts drops some or maybe alot when the tradelines fall off the report.
 
FICO should make this change for their next release.   But I probably have a better chance of winning the lottery then seeing this in my lifetime.
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cobra19
Posts: 1,424
Registered: ‎07-24-2007
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Re: Number of credit cards

I suspect with a 784, your utility was already pretty low. I think what hurt you more was losing the history those old cards gave you.  
 
 
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cheddar
Posts: 6,794
Registered: ‎09-29-2007
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Re: Number of credit cards



Boscoe wrote:
rll - Your scores only dropped 7 points due to not having a big change in UTL......in 10 years when all these closed credit cards drop off your report, you will likely see a worse drop than 7 points.....
 
This is a part of the FICO model that I totally disagree with.   A closed account should stay on the report forever, or at least allow one or two to remain on the file for scoring purposes.
 
Or better yet, use the "date file opened" for each CRA as your "oldest age" date.   The way they do it now, closing accounts hurts a little now (i.e. lower avail. credit =  higher UTL = lower score) and alot later when the oldest and avg. age of accounts drops some or maybe alot when the tradelines fall off the report.
 
FICO should make this change for their next release.   But I probably have a better chance of winning the lottery then seeing this in my lifetime.


I see where you're coming from Boscoe, but I can also see the logic in the way they do it now.
 
The major difference between "date file opened" at the CRA and "date opened" of your oldest account is that with the latter, the longer you've had that one particular account open, the more it speaks to your responsible borrowing habits.  Obviously, if one particular lender has been willing to extend credit to someone for 40 years or more, that should be looked upon more favorably than if that same person had opened an account 40 years ago, defaulted on it, then repeated that scenario over and over again 20 or 30 times.
 
If FICO used the "date file opened," then both of the scenarios above would be treated the same when it came to determining age of accounts.
 
----------------------------
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RobertEG
Posts: 18,543
Registered: ‎03-19-2007
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Re: Number of credit cards

[ Edited ]
This is an interesting subject, at least for me, as it pertains to how a closed TL can drop out of scoring in certain categories, such as current &util and credit mix, but  I do not see "closed accounts" as "dropping" from my CR.  If that were the case, then my current 23 years of credit history based on my oldest account, long ago closed, would not, and could not, be determined.   Most of my old closed accounts are still there, and are used in the length of credit history calculations.   Sure, they no longer have any effect on my credit mix, %util, and no longer count in my payment history as baddies after 7 years, etc. scoring categories, but certainly do in my lenght of credit history scoring categories, and in the payment history category for 7 years after a derog, even if the account is closed.   It appears that the loosely used term "dropping off" more appropriately refers to only a portion of FICO scoring, and is thus only a partial "dropping off."    If anyone has information on what is meant by "dropping off,"  I would love to hear the explanation....


Message Edited by RobertEG on 02-27-2008 02:59 PM
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haulingthescoreup
Posts: 28,098
Registered: ‎04-01-2007
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Re: Number of credit cards

Usually closed accounts will vanish from credit reports on the tenth anniversary of their closings. Once an account no longer displays, its opening date is no longer available to calculate your oldest account, aka your length of credit history. Sometimes an account will continue to display past its 10th year after closing, and if so, the advice is to whisper, and to tip-toe quietly past it.

Sometimes they come off sooner, especially on Equifax when it starts filling up, and that can be a killer if if was an old clean account helping both length of history and quality of history. If is was your oldest, then obviously you lose that, and even if it wasn't, your average length of history might well drop. I had a closed store account fall off EQ in December only 4 years after closing, and my average age went from 5-something years down to 4 years, 11 months, bad timing with my recent app spree.
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
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Boscoe
Posts: 660
Registered: ‎09-11-2007
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Re: Number of credit cards

The major difference between "date file opened" at the CRA and "date opened" of your oldest account is that with the latter, the longer you've had that one particular account open, the more it speaks to your responsible borrowing habits.  Obviously, if one particular lender has been willing to extend credit to someone for 40 years or more, that should be looked upon more favorably than if that same person had opened an account 40 years ago, defaulted on it, then repeated that scenario over and over again 20 or 30 times.
 
If FICO used the "date file opened," then both of the scenarios above would be treated the same when it came to determining age of accounts.
__________________
 
 
Cheddar:
 
But you must concede that your scenario above is in the vast minority.    MyFico, when discussing age and avg. age, says "People that....have longer credit histories generally post less risk to lenders."  It doesn't say "long history with the same card".  
 
I know many people, including myself, who have closed accounts and opened new, better accounts with better rewards, interest rates, etc.   We get punished by this method that FICO uses, and it in the overwhelming # of cases it does NOT correlate to higher risk as borrowers.
 
 
 
 

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