wildcat wrote:
This also has happened to me and we are trying to get a home loan in January....I am worried how this will affect our credit score? I can't pay the entire balance this month but can have it all paid off by next month...will we regain the lost pts due to utilization changes? Also someone another board is saying that the entire payment history will be lost but is that true? It just does not drop off of credit report? I would think it would show up as a closed tradeline...but people of backing what this poster is saying is true.
No, you're good --I replied on your other post.
General info for any new members reading this:
First of all, please read fused's Closing Credit Cards, linked in my siggy below.
The history of the card will continue to display for up to 10 years (EQ likes to dump them early), and it will factor into both your AAoA and your longest history, if it was your oldest card. So ten years from now, you will lose its help, but otherwise, it's just as useful closed as open.
Where people get hurt when a card is closed on them is if they are carrying balances. Util (revolving utilization, or how much of your allowed credit you actually use) is a HUGE driver of your scores. If you are carrying balances, or even if you pay them off every month but allow them to post balances to your credit reports, losing the credit limit on the closed card will raise your util, perhaps high enough to hurt your scores. Here's how it works:
Card 1: $220 balance / $500 limit
Card 2: $200 balance / $800 limit
Card 3: $70 balance / $2200 limit
With this combo of cards and balances, you would have $490 total balance / $3500 total credit limits, or 14% total util, which is quite respectable.
But if Card 3 gets closed down, even after you pay off the $70 balance, you have lost the $2200 CL. So now your util is $420 / $1300, or 33%. You have the same amount of debt (actually, a little less since you paid off the closed card), but you have a so low total CL to apply it against that you suddenly look very scary to lenders.
The way to immunize yourself against the effect of having a card closed, or its rate increased to an insanely high figure, is to not have ongoing debt on your CC's. I use my CC's like debit cards --I only charge things that I would have bought anyway, and that I can pay for out of savings, if necessary. This isn't something that many of us can achieve overnight, but it should be one of your long-term financial goals.
Also, for any new members, if you haven't already, please read
Understanding Your FICO ® Score and
Credit Scoring 101 (at least the first post.)
These will give you the background knowledge you need to understand what you read here on the forums.
* 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
