topic Re: Closing New Accounts in Understanding FICO® Scoring

Closing New Accounts

Anonymous — Mon, 25 Jun 2007 11:25:49 GMT

I see that the general recommendation here is to not close accounts, one because your total credit line will drop and two because you're cutting off your credit history.

But what if the card you'd like to close is only a few months old and your total credit line is high? I have 16 active cards now and $54,700 in available credit. Closing this new card would drop that by $3600 (and give me one less card to keep track of). I have essentially no outstanding debt on these cards, so the UTL is minimal to none. In other words, I don't see the drop in total available credit as having much impact. On the other hand, my limited account history hurts me.

My goal here would be to improve my average account length, which as it stands is 3 years. My oldest accounts are 6 years old. In the last year and a half, I've only opened 1 account, which was 4 months ago. Will closing this account increase my average account length and potentially improve my score in the history component? What would you do in this situation?

Re: Closing New Accounts

Tuscani — Mon, 25 Jun 2007 12:38:51 GMT

in this situation closing out the account would be fine.

Re: Closing New Accounts

Anonymous — Mon, 25 Jun 2007 17:37:03 GMT

It should be ok to close it in this case.

When I close new account (very new as in a couple months) for reasons where I don't like the bank or something, I ask the bank to remove the card from my CRAs. I don't even want it showing it existed. I would only do this for a very new card. I have to eat the inquiry.

Message Edited by ilovepizza on 06-25-2007 10:37 AM

Re: Closing New Accounts

smallfry — Mon, 25 Jun 2007 21:17:52 GMT

If it is a prime name I wouldn't close the card. Through years of use you might be able to CLI this card to a nice limit. Is it Chase or BOA CITI something like that or is it Household or one of the other sub-prime/wanna be prime names? $3600 is nothing to sneeze at.

Re: Closing New Accounts

Anonymous — Thu, 28 Jun 2007 21:28:48 GMT

It's a Citi card. I opened it because it had a 0% introductory APR for a year, I believe.

Re: Closing New Accounts

Anonymous — Thu, 28 Jun 2007 22:16:00 GMT

So if you're going for average age, consider this.

Closing it will mean it'll continue to report an additional 10 years, but with only 1 year of age.

For my sanity's sake, let's say you have three cards and the other two have been open for three years.

If you left the account open, your average age of accounts in 10 years will be 12.3 years.

If you close the account, your average age in 10 years will be 9 years.

Re: Closing New Accounts

fused — Thu, 28 Jun 2007 23:22:35 GMT

I agree with Tuscani on this one. Also, if util % is virtually unchanged, closing the account will not decrease scores since closed positive CC TLs still weight a lot in scoring just as open ones do.

Re: Closing New Accounts

Anonymous — Fri, 29 Jun 2007 04:14:34 GMT

Skiffy,

You say that the card will continue to report with 1 year of age if I close it now. Isn't this the point of closing it, so the age is no longer factored into the average age?

Re: Closing New Accounts

smallfry — Fri, 29 Jun 2007 09:23:37 GMT

@Anonymous wrote:
Skiffy,
You say that the card will continue to report with 1 year of age if I close it now. Isn't this the point of closing it, so the age is no longer factored into the average age?

Closed and open accounts both are figured in the equation for your average age.

Re: Closing New Accounts

Tuscani — Fri, 29 Jun 2007 11:05:59 GMT

@smallfry wrote:

@Anonymous wrote:

Skiffy,

You say that the card will continue to report with 1 year of age if I close it now. Isn't this the point of closing it, so the age is no longer factored into the average age?

Closed and open accounts both are figured in the equation for your average age.

Correct. And the only area of scoring where closing an account can hurt you is in the revolving utilization calculations. While a closed revolving account with a balance is included in utilization, a closed account with a zero balance is not.

In the area of length of credit history, closed accounts are treated no differently than open accounts. That is, the length of history on a closed acct still gets counted right along with the rest of the closed account's history. In fact, the length of credit history gets counted for every trade line on your report, regardless.

So, the only harm by closing a revolving account is to the utilization percentage, while, in the long run, a closed account will be removed from your credit file after 10 years, which could lower your score at that time due to the loss of that history.

Message Edited by Tuscani on 06-29-2007 06:05 AM

Re: Closing New Accounts

fused — Fri, 29 Jun 2007 16:47:22 GMT

@Tuscani wrote:

@smallfry wrote:

@Anonymous wrote:
Skiffy,
You say that the card will continue to report with 1 year of age if I close it now. Isn't this the point of closing it, so the age is no longer factored into the average age?

Closed and open accounts both are figured in the equation for your average age.

Correct. And the only area of scoring where closing an account can hurt you is in the revolving utilization calculations. While a closed revolving account with a balance is included in utilization, a closed account with a zero balance is not.

In the area of length of credit history, closed accounts are treated no differently than open accounts. That is, the length of history on a closed acct still gets counted right along with the rest of the closed account's history. In fact, the length of credit history gets counted for every trade line on your report, regardless.

So, the only harm by closing a revolving account is to the utilization percentage, while, in the long run, a closed account will be removed from your credit file after 10 years, which could lower your score at that time due to the loss of that history.

Message Edited by Tuscani on 06-29-2007 06:05 AM

So much for the idea of don't close credit cards unless they are costing you money. I am glad you made this post, I tried to last night but I was exhausted and kept messing it up. There is a lot of confusion on this subject. Please sticky this thread!

Re: Closing New Accounts

Tuscani — Fri, 29 Jun 2007 18:17:11 GMT

@fused111 wrote:

@Tuscani wrote:

@smallfry wrote:

@Anonymous wrote:

Skiffy,

You say that the card will continue to report with 1 year of age if I close it now. Isn't this the point of closing it, so the age is no longer factored into the average age?

Closed and open accounts both are figured in the equation for your average age.

Correct. And the only area of scoring where closing an account can hurt you is in the revolving utilization calculations. While a closed revolving account with a balance is included in utilization, a closed account with a zero balance is not.

In the area of length of credit history, closed accounts are treated no differently than open accounts. That is, the length of history on a closed acct still gets counted right along with the rest of the closed account's history. In fact, the length of credit history gets counted for every trade line on your report, regardless.

So, the only harm by closing a revolving account is to the utilization percentage, while, in the long run, a closed account will be removed from your credit file after 10 years, which could lower your score at that time due to the loss of that history.

Message Edited by Tuscani on 06-29-2007 06:05 AM

So much for the idea of don't close credit cards unless they are costing you money. I am glad you made this post, I tried to last night but I was exhausted and kept messing it up. There is a lot of confusion on this subject. Please sticky this thread!

"So much for the idea of don't close credit cards unless they are costing you money"

Why do you say that?

Re: Closing New Accounts

fused — Fri, 29 Jun 2007 18:42:28 GMT

Tuscani:

There are other reasons to close positive CC accounts other then they are costing you money. Maybe some folks do so because they have trouble managing them or some of their oldest cards are starter cards and have little or no perks/rewards. My concern is a lot of people think closing their CCs will cause their scores to plummet. I am glad you explained in your post the possible effect on revolving utilization calculations when closing a CC, and how a positive closed CC TL is treated the same as an open one.

Re: Closing New Accounts

Tuscani — Fri, 29 Jun 2007 19:16:56 GMT

fused111 wrote:

Tuscani:

There are other reasons to close positive CC accounts other then they are costing you money. Maybe some folks do so because they have trouble managing them or some of their oldest cards are starter cards and have little or no perks/rewards. My concern is a lot of people think closing their CCs will cause their scores to plummet. I am glad you explained in your post the possible effect on revolving utilization calculations when closing a CC, and how a positive closed CC TL is treated the same as an open one.

Agreed.. my brain tends to focus on JUST the scoring aspect sometimes.

Re: Closing New Accounts

smallfry — Fri, 29 Jun 2007 19:40:06 GMT

Bottom line is if they aren't costing you anything keep them open. If you can't trust yourself put them in a safe deposit box so you can't get to them. One day you'll be sorry for negatively impacting your history. How do you think the FICO high achievers get their 20 year plus history? Closing accounts? LOL.

Re: Closing New Accounts

fused — Fri, 29 Jun 2007 23:25:30 GMT

smallfry wrote:
Bottom line is if they aren't costing you anything keep them open. If you can't trust yourself put them in a safe deposit box so you can't get to them. One day you'll be sorry for negatively impacting your history. How do you think the FICO high achievers get their 20 year plus history? Closing accounts? LOL.

No, bottom line is if you want to close a CC, make sure the balance is $0 and be sure there is no adverse effect to your revolving util%. High achievers with 20 plus year histories are older folks, I imagine at least well in their 40's, with perfect or near perfect payment histories. Doesn't matter if their accounts are open or closed, the point is they are postitive TLs. Remember all positive CC TLs are weighted the same rather they are open or closed.

Re: Closing New Accounts

smallfry — Sat, 30 Jun 2007 00:21:48 GMT

@fused111 wrote:

@smallfry wrote:
Bottom line is if they aren't costing you anything keep them open. If you can't trust yourself put them in a safe deposit box so you can't get to them. One day you'll be sorry for negatively impacting your history. How do you think the FICO high achievers get their 20 year plus history? Closing accounts? LOL.
No, bottom line is if you want to close a CC, make sure the balance is $0 and be sure there is no adverse effect to your revolving util%. High achievers with 20 plus year histories are older folks, I imagine at least well in their 40's, with perfect or near perfect payment histories. Doesn't matter if their accounts are open or closed, the point is they are postitive TLs. Remember all positive CC TLs are weighted the same rather they are open or closed.

Older folks in their 40's? You are a young one aren't you? Bottom line is once you close them you have frozen them. If you keep your accounts open that don't cost and pay your bills by the time you reach near death (50 ya think? LOL) you can sleepwalk to 750.

Re: Closing New Accounts

fused — Sat, 30 Jun 2007 00:30:49 GMT

@smallfry wrote:

@fused111 wrote:

@smallfry wrote:
Bottom line is if they aren't costing you anything keep them open. If you can't trust yourself put them in a safe deposit box so you can't get to them. One day you'll be sorry for negatively impacting your history. How do you think the FICO high achievers get their 20 year plus history? Closing accounts? LOL.
No, bottom line is if you want to close a CC, make sure the balance is $0 and be sure there is no adverse effect to your revolving util%. High achievers with 20 plus year histories are older folks, I imagine at least well in their 40's, with perfect or near perfect payment histories. Doesn't matter if their accounts are open or closed, the point is they are postitive TLs. Remember all positive CC TLs are weighted the same rather they are open or closed.

Older folks in their 40's? You are a young one aren't you? Bottom line is once you close them you have frozen them. If you keep your accounts open that don't cost and pay your bills by the time you reach near death (50 ya think? LOL) you can sleepwalk to 750.

Yes I said older at least in their late 40's or older, not old! My point is you can have a score of 800+ with positive CC TLs RATHER THEY ARE OPENED OR CLOSED!!!!!!!!!!!!!!!!!! Your accounts will not freeze they are positive. CCCs can freeze if you misbehave or get hit with an FR but this off subject

Re: Closing New Accounts

smallfry — Sat, 30 Jun 2007 01:40:12 GMT

If I have a credit card that I opened in 2002 and close it today it stays on my report until 2017. If I leave it open it ages indefinitely. Oh boy.

Re: Closing New Accounts

fused — Sat, 30 Jun 2007 02:00:54 GMT

smallfry wrote:
If I have a credit card that I opened in 2002 and close it today it stays on my report until 2017. If I leave it open it ages indefinitely. Oh boy.

Yes, if open then indefinitely!