topic Re: Closing newest credit card with low limit in Understanding FICO® Scoring

Closing newest credit card with low limit

Anonymous — Thu, 03 Dec 2015 16:09:50 GMT

Hi,

So currently I have four credit cards:

Credit Card 1 - Opened January 2013 - $2,000 limit

Credit Card 2 - Opened September 2015 - $12,000 limit

Credit Card 3 - Opened October 2015 - $7,500 limit

Credit Card 4 - Opened October 2015 - $300 limit

As you can see, the $300 limit credit card is doing absolutely nothing for me, and it also happens to be my newest. My question is, would it benefit my credit score to close this account? As its not going to make any real impact on my credit utilization percentage and it would actually increase the average age of my open credit accounts. What do you guys think?

Re: Closing newest credit card with low limit

SouthJamaica — Thu, 03 Dec 2015 16:32:33 GMT

@Anonymous wrote:
Hi,

So currently I have four credit cards:

Credit Card 1 - Opened January 2013 - $2,000 limit
Credit Card 2 - Opened September 2015 - $12,000 limit
Credit Card 3 - Opened October 2015 - $7,500 limit
Credit Card 4 - Opened October 2015 - $300 limit

As you can see, the $300 limit credit card is doing absolutely nothing for me, and it also happens to be my newest. My question is, would it benefit my credit score to close this account? As its not going to make any real impact on my credit utilization percentage and it would actually increase the average age of my open credit accounts. What do you guys think?

Just let it be, use it a little, and let it grow.

1. The average age of your "open" credit accounts is meaningless; the average age of your accounts is a key factor but it includes closed as well as open accounts. So closing it won't do anything for your AAoA.

2. It continues to show up as a new account even after you close it.

3. Closing it will increase your utilization percentage.

Re: Closing newest credit card with low limit

Thomas_Thumb — Thu, 03 Dec 2015 17:41:14 GMT

There are a few things to consider.

1) Is card 4 a retail store card? If so, store cards negatively impact credit based insurance scores used as a component for determining Auto and Home insurance premiums. Negative impact increases with low limit cards. Consider ditching the card if you have high insurance premiums and don't know why.

2) Is there potential to bump up the credit limit on the card? If so, can it be done without triggering a hard credit inquiry? If yes, consider keeping the card and ask for a CLI to $1000 after you have had the card at least 6 months. Then after another 90 days, go for $2000 or $2500. You will need to show some use on the card.

3) If this low limit card has a yearly fee, ditch it.

Note: Credit limits DO NOT affect Fico scores but DO affect credit based insurance scores.

See below from LexisNexis for scroring categories relating to average revolving account limit (higher => higher score potential)

Auto Insurance Reason Codes

3030	Average Credit Line on Bank Revolving Accounts is $725 or Less more info
3031	Average Credit Line on Bank Revolving Accounts is $726 to $1,024 more info
3032	Average Credit Line on Bank Revolving Accounts is $1,025 to $2,075 more info
3033	Average Credit Line on Bank Revolving Accounts is $2,076 to $3,109 more info
3034	Average Credit Line on Bank Revolving Accounts is $3,110 to $4,778 more info
3035	Average Credit Line on Bank Revolving Accounts is $4,779 to $5,773 more info
3036	Average Credit Line on Bank Revolving Accounts is $5,774 to $6,175 more info
3037	Average Credit Line on Bank Revolving Accounts is $6,176 to $7,919 more info
3038	Average Credit Line on Bank Revolving Accounts is $7,920 to $10,532 more info

Home Insurance Reason Codes

3295	Average Credit Line on Bank Revolving Accounts is $556 or Less more info
3296	Average Credit Line on Bank Revolving Accounts is $557 to $3,440 more info
3297	Average Credit Line on Bank Revolving Accounts is $3,441 to $4,068 more info
3298	Average Credit Line on Bank Revolving Accounts is $4,069 to $7,492 more info
3299	Average Credit Line on Bank Revolving Accounts is $7,493 to $10,131 more info
3300	Average Credit Line on Bank Revolving Accounts is $10,131 to $13,001 more info

Re: Closing newest credit card with low limit

NRB525 — Thu, 03 Dec 2015 20:01:45 GMT

TT that's fine to have the buckets, but how does that translate to effect on premiums?

Re: Closing newest credit card with low limit

Anonymous — Thu, 03 Dec 2015 21:04:54 GMT

Hello TT! Interesting stuff. Thanks.

I am used to seeing the phrase "reason code" to mean (for FICO) "reason why your score has been penalized." Can I infer that, for auto insurance, an average credit line of > $10,532 incurs no penalty (associated with this factor)? In other words, the final "bucket" is $10,533+ ?

Another question... does LexusNexis indicate whether they count only open bankcards for this average computation? In other words, if a person closed a low CL card, could he be reasonably confident that it would cause this computed average to go up the next month -- or do they compute this based on all bank cards, closed and open?

I have an old small card that was closed many years ago, and which I think will finally be exiting my reports next year. Curious whether that will cause my computed average for this LN score to go up.

Re: Closing newest credit card with low limit

Thomas_Thumb — Thu, 03 Dec 2015 21:52:10 GMT

NRB525,

Credit based insurance scores (CBIS) are only one factor in your overall premium. Where you live, what you drive, your age, driving record and past claims all come into play. Also, who you get your insurance through and whether they look at LexisNexis or TU insurance scores make a difference. Furthermore, a few states, CA is one, forbid insurance companies from using scores as a component in premiums.

You will have to review specifics with your insurance agent. Unfortunately, many agents are unlikely to know specifics beyond what your score may be - and even if they know your credit based score, they may not be at liberty to discuss how it affects your premium).

At the end of the day, credit based insurance scores (TU and LN) list average revolving credit as a factor in scoring. LN also lists retail/store cards as a factor. In this case being aware that the factors exist is as far as it goes. As with Fico, the summary score is what counts in decisioning. Impact of specific categories and the "buckets" within those categories may be available but I have not come across and such a breakdown. Not aware of any CBIS simulators.

Whether or not the published reason codes should influence your credit card procurement strategy is a personal decision.

Re: Closing newest credit card with low limit

Thomas_Thumb — Fri, 04 Dec 2015 01:12:17 GMT

@Anonymous wrote:
Hello TT! Interesting stuff. Thanks.

I am used to seeing the phrase "reason code" to mean (for FICO) "reason why your score has been penalized." Can I infer that, for auto insurance, an average credit line of > $10,532 incurs no penalty (associated with this factor)? In other words, the final "bucket" is $10,533+ ?

Another question... does LexusNexis indicate whether they count only open bankcards for this average computation? In other words, if a person closed a low CL card, could he be reasonably confident that it would cause this computed average to go up the next month -- or do they compute this based on all bank cards, closed and open?

I have an old small card that was closed many years ago, and which I think will finally be exiting my reports next year. Curious whether that will cause my computed average for this LN score to go up.

CGID, good question - If count includes closed, might as well leave a small CL card open and increase its CL...instead of closing it and letting it age off.

Click on one of the "more info" and it will take you to the full LN reason code table. Different pdf tables for Auto and Home. See one cut-paste below

3030 Average Credit Line on Bank Revolving Accounts is $725 or Less

Average Credit Line of $10,533 or More is Better

What information is this message derived from? The score considers the average credit line for open bank revolving accounts. This is done by summing the credit lines for all open bank revolving accounts and dividing by the number of bank revolving accounts on file. A bank revolving account is one such as a Visa, MasterCard, etc.
How does this affect my insurance risk score? Insurance industry research shows that consumers with higher credit lines on their bank revolving accounts have fewer insurance losses.
What can I do to improve this aspect of my score? As your bank revolving accounts age your credit card issuer may consider raising your credit line.

Note: The above seems to say (total of open CLs)/ (total # cards open + total # cards closed). Generally on file = open + closed

0134 Number of Department Store Accounts Established Auto - 2 or less is better

What information is this message derived from? The score considers the number of accounts that you have opened with department stores. These are accounts primarily with stores such as JC Penney, Macy’s, Bloomingdales’ etc.
How does this affect my insurance risk score? Insurance industry research shows that consumers who open accounts with department stores experience more insurance losses.
What can I do to improve this aspect of my score? Once you have opened the account and regardless of whether you use it or not your score will be impacted by this factor. Open new accounts only when needed.

0137 Number of Retail Accounts Established Auto - 0 is better

What information is this message derived from? The number of accounts established (regardless of timeframe) with retail stores. Retail accounts refer to clothing stores, jewelers, home furnishings, mail order and variety stores.
How does this affect my insurance risk score? Insurance industry research shows that consumers who open accounts with retailers have more insurance losses.
What can I do to improve this aspect of my score? Once you have opened the account and regardless of whether you use it or not, your score will be impacted by this factor. Open new accounts only when needed.

Re: Closing newest credit card with low limit

tntexans72 — Fri, 04 Dec 2015 01:08:02 GMT

Who gave you $300? Do you have any other cards you want down the road? If it's a new bank that just approved you for $300, they may want to see how you will handle the card. Maybe down the 6-12 months, you can app for another card from that bank and get a bigger CL once they know your internal score(s) with them. I had a similar situation with Barclaycard. They started me out low, gave me auto cli after 6 months etc...I was just approved for a big CL for another product from them so time is the essence. You already took the hit IMO.

Re: Closing newest credit card with low limit

Thomas_Thumb — Sat, 05 Dec 2015 22:52:31 GMT

@Anonymous wrote:
Hello TT! Interesting stuff. Thanks.

I am used to seeing the phrase "reason code" to mean (for FICO) "reason why your score has been penalized." Can I infer that, for auto insurance, an average credit line of > $10,532 incurs no penalty (associated with this factor)? In other words, the final "bucket" is $10,533+ ?

Another question... does LexusNexis indicate whether they count only open bankcards for this average computation? In other words, if a person closed a low CL card, could he be reasonably confident that it would cause this computed average to go up the next month -- or do they compute this based on all bank cards, closed and open?

I have an old small card that was closed many years ago, and which I think will finally be exiting my reports next year. Curious whether that will cause my computed average for this LN score to go up.

CGID, Another piece of info on LN scores FWIW.

I checked my scores today (last report was 10/18). In between checks I had one closed account drop off my file (the BB store charge card) and $12,900 in CLI combined on open CC accounts. Also ha one unauthorized HP show up from Pentagon - shows on LN report (which pulls from EQ). Nothing else going on.

The LN credit based insurance scores changed as follows:

LexisNexis Score	12/3/2015	10/18/2015
Auto	900	873
Property	870	855

The key factors in influencing your score are:

0137	# OF RETAIL ACCOUNTS ESTABLISHED...more info
0165	% OF ALL DEPART STORE ACCTS REPORTED IN LAST 24 MOS TO TOTAL # ACCTS...more info

Sure looks like the reduction in # closed retail accounts made a difference even though they still are listed as a negative (still have a closed Kohls and open BB card on file). The table below shows rating categories from LN.

ChoicePoint score "buckets" and associated cost by bucket shown below.

Re: Closing newest credit card with low limit

Anonymous — Fri, 04 Dec 2015 05:31:01 GMT

All fascinating stuff. Thanks TT. I will read through it tomorrow!

Re: Closing newest credit card with low limit

Thomas_Thumb — Sat, 05 Dec 2015 22:16:14 GMT

@NRB525 wrote:
TT that's fine to have the buckets, but how does that translate to effect on premiums?

FWIW

Re: Closing newest credit card with low limit

Anonymous — Sat, 05 Dec 2015 23:50:28 GMT

Thanks TT. Just saw your most recent chart. It made me think.

A lot of the time people act as though there are the Big Bad Corporations and that various kinds of laws designed to protect people from using their credit profile against them -- well those must be an unqualified good thing, right?

Except that there really isn't a free lunch in this world. So, for example, in the state of California, where Geico and Co. are forbidden to look at a person's credit report -- that's nice. But the insurance risk hasn't altered at all. So it means that in that state, the much higher risk and cost to the insurer of people with low credit scores is being subsidized by everyone else.

It turns out that I live in a state where the penalty (to one's monthly premium) of having a bad score is pretty high. So my guess is that I am being rewarded for having a good credit score -- not being asked to pay a higher amount to subsidize high risk drivers.

Similarly, we tend to believe that it is a big victory for the little guy when the CRAs or FICO are induced, possibly through threat of legal action or through the acts of legislatures, to pass further rules stating that medical collections must ignored, or paid collections must ignored, or whatever. But that just means that there are more people who have gotten into credit trouble who will have much higher scores -- and by the same argument there is a cost that somebody pays for that -- and it isn't gonna be the big corporation.

Of course that doesn't mean that all credit protection laws are bad. It's good that we have some eventual cutoff (7 years mostly) beyond which negative credit data can't be seen. It's good that we no longer have debtors prison, as we did in the days of Charles Dickens. Etc. And individually any particular protection may be worth enacting. But if so, it should be looked at case by case, and with an awareness that there is a cost to everything.