Will my score improve now?

Anonymous · ‎11-01-2012

I have recently paid off all my credit cards account with a consolidation loan from my credit union. The interest rate was much more affordable and now all my credit cards have 0 balances. I have an auto loan, two student loans, this new consolidation loan and no current collections (still one from 2008, but 0 balance). All accounts are current with no lates in the past 3 years. My question is, if I close some of the credit cards (ones with annual fees), how will this effect my score? Should I expect an increase or decrease because of the new loan? My current score from TransUnion (pulled here) is 654.

llecs · ‎11-01-2012

@Anonymous wrote:
I have recently paid off all my credit cards account with a consolidation loan from my credit union. The interest rate was much more affordable and now all my credit cards have 0 balances. I have an auto loan, two student loans, this new consolidation loan and no current collections (still one from 2008, but 0 balance). All accounts are current with no lates in the past 3 years. My question is, if I close some of the credit cards (ones with annual fees), how will this effect my score? Should I expect an increase or decrease because of the new loan? My current score from TransUnion (pulled here) is 654.

Dynamic situation....

Adding any new account, like a loan, will usually drop your FICO. It can drop by a couple of points due to the new inquiry and drop much more due to the new credit and potential impact to AAoA. YMMV on your credit of course. On average I lost 20-25 per new account reporting.

If all of the funds went to CC balances, then obviously revolving utilization dropped. Dropping util will increase your scores. The increase is dependent upon the overall change in your revolving utilization and whether or not any of these cards were reporting over the limit. I once got a consolidation loan and my CC util dropped from 89% to 1%. My EQ FICO increased 125 points and TU FICO increased around 75-80 or so. Util is a big deal. Most of these points came when balances hit from 30% util down to 1%.

Then you have the closing of the CCs. Once closed then they are forever removed from utilization calcs once the balance hits $0. So, if there were any balances on any other CC, then closed $0 balance accounts are removed and that can increase your CC util and decrease your score. If you have all $0 balances, then util will remain at 0% and all is good. BTW, you can actually get dinged for having all $0 balances. Let a small balance report on at least one CC.

Send a GW letter to the paid collection.

somnipotent · ‎11-01-2012

Yes and no. The changes won't be as dramatic as you'd like. You just shifted your debt from one type to another and added new credit to the mix. Your revolving credit utilization of 0% should shift your scores upward though. As far as closing credit cards with AFs, I would call and see if they can waive those fees for you. Most companies, the good ones that is, will. Also watch out to not close the ones that are oldest, which could severely impact your AAoAs. Work on getting those baddies off and continue to pay on time every time. You'll see improvement as little as within 6 months.

Anonymous · ‎11-01-2012

Thank you for the quick response. The loan officer actually advised me to close the ones with annual fees. I just wanted to get a second (or third) opinion. I plan to use one and payoff so that I do have a small balance (under 9%) reporting. I will try the GW letter for the collection. Never attempted before, but it can't hurt! It was a medical collection, I had insurance, but it didn't pay the entire balance. It was only for $100. Silly oversight.

igids1 · ‎11-01-2012

It depends on what you are looking to achieve, credit wise, in the next few years also. How much are the annual fees on the credit cards? In my opnion, you would not see any positive impact by closing those cards. In my opinion, if you are looking to purchase home anytime, within the next two years, I would keep them open. If you are not looking to buy a home, then I would suggest consider reasearching a "keeper card" or two. Apply for them now, and if you are approved you can close the ones you dislike.

When you say "loan officer" it makes me think mortgage. I would be cautious on some of their advice. They can often be clueless on how fico works, and if you were going to be applying for a mortgage soon, I would be cautious about opening or closing any account, unless its a PFD on a negative one.