canceling a line of credit

[Anonymous]

I have a FICO score of 713. In the next few months, my mortgage APR is going to adjust to the current rate at that time, and I want to make sure that I get the best rate. I recently paid off a Personal Loan with a balance of $22,000. The account is still open and says I have an available line of credit for the loan of $26,000. I feel that this doesn't look good, as I have all this open line of credit available to me. Should I request cancelation of this loan to help my FICO score, or can that hurt my score by canceling this loan? I don't know which option is worse....

Thanks in advance for your advice, it is greatly appreciated!!!

[RobertEG]

From what you have said, it appears that the "loan" was not an installment loan, but rather a line of credit (LOC).

LOCs, within certain limits, can be scored as revolving credit.  Check your % util of revolving with and without the LOC factored in, and you can determine if it is being scored as revolving.  If so, closing the account will cause a loss of its CL in your % revolv calc, and also will provide one less acct to factor into your % revolv with balance calculation.

It appears that the impact of closing will vary significantly depending upon how it is now being scored.

[pizzadude]

Does this loan show on your CRs as an installment loan or as a revolving account ??

Having available credit is never bad from a FICO perspective in either case.

[Anonymous]

Thanks for your response, I just checked my CR and it does show as a line of credit and as a revolving account....I never realized it was listed as that. So, not sure what to do? Thanks again for your help!

[pizzadude]

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@Anonymous wrote:
Thanks for your response, I just checked my CR and it does show as a line of credit and as a revolving account....I never realized it was listed as that. So, not sure what to do? Thanks again for your help!

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If it shows as revolving then FICO treats it in the same way as other revolving accounts, like credit cards.  

Once it shows as paid off, it will contribute in a positive way to your revolving %utlization which is a significant part of FICO scoring, it will add 26K to your available revolving credit.

[Anonymous]

Thanks so much to both of you for your help!!!! I truly appreciate the advice, that makes a lot of sense! I will leave the account open. Thanks again!!!

[Duke-of-Earl]

All the posts in this thread address how the OP can best improve his FICO score.  Certainly a worthwhile goal, but it may be irrelevant to the reason for his question.

OP, you wrote

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@Anonymous wrote:

... In the next few months, my mortgage APR is going to adjust to the current rate at that time, and I want to make sure that I get the best rate.

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I'm wondering whether an improved FICO score will make any difference.  It sounds like you have an ARM, which usually incorporates a pre-specified rate reset formula, usually some index plus an offset, and often with a cap.  An ARM with the adjustment left to the lender's judgment sounds very dangerous, possibly even illegal.  You could only take your business elsewhere by re-financing.  Have you looked at your mortgage contract to see how the rate reset is specified?