Closing store cards and the AAoA effect

[jetsfan2013]

My girlfriend has two credit cards she uses primarily, one opened for over 3 years (Chase Freedom) and one she has had for a little over a year now (Amex Gold - apped when I got mine). Aside from that she signed up for cards during the holidays to *take advantage* of promos like 15% off at the register etc from places like Victorias Secret, Banana Republic etc. She now has four store cards she doesn't use, doesn't owe anything on, but has already gone ahead and closed all but 1 of them (Express she plans to close at the end of this month). 

She will have 2 CC (1 with a 7.5k limit, the other with NPSL) that will report. Both are prime cards, and she really has no interest at this point in obtaining any more cards. Her only credit goal the remainder of 2019 is to pay off her car that she bought last spring.

With an AAoA of just 1 year, my gf has the option now to potentially do this. Any thoughts/suggestions on how this will impact her FICO is appreciated.

[Anonymous]

It won’t affect her account ages, as closed-in-good-standing accounts continue to factor into her AAoA. She should see an increase in AoYA though, as her keeper cards are older than the store cards she’s closing, and that may well give her a score bump as her AoYA will go back to being over a year old, provided she closes that last recent store card. Utilization on the Freedom will determine if any of the gain is offset by an increase in aggregate utilization as a result of having a lower total credit line.

[Anonymous]

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@jetsfan2013 wrote:

My girlfriend has two credit cards she uses primarily, one opened for over 3 years (Chase Freedom) and one she has had for a little over a year now (Amex Gold - apped when I got mine). Aside from that she signed up for cards during the holidays to *take advantage* of promos like 15% off at the register etc from places like Victorias Secret, Banana Republic etc. She now has four store cards she doesn't use, doesn't owe anything on, but has already gone ahead and closed all but 1 of them (Express she plans to close at the end of this month). 

She will have 2 CC (1 with a 7.5k limit, the other with NPSL) that will report. Both are prime cards, and she really has no interest at this point in obtaining any more cards. Her only credit goal the remainder of 2019 is to pay off her car that she bought last spring.

With an AAoA of just 1 year, my gf has the option now to potentially do this. Any thoughts/suggestions on how this will impact her FICO is appreciated.

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There should be no impact on her FICO scores if the store cards are closed in good standing.  They should continue to report to the credit bureaus for 10 years so AAoA will be unaffected until the eventually drop off her reports.  By then the age of the two open credit cards should offset any loss.

Paying off the auto loan will cause her to lose points on her FICO score if she doesn't not have another installment loan reporting.

[jetsfan2013]

Thanks for the clarity everyone. She carries a small balance (400-500) on the Chase Freedom, and plans on keeping that card along with the Amex for a while.

[kdm31091]

Her AAoA won't change when the accounts are closed. They will continue to factor in for the next roughly 10 years.

As far as the car loan, yes, she will lose some FICO points when the installment loan is marked as paid off. IMO it's more liberating to be free of debt than to worry about losing points on a score, especially with no apps planned anyway.

[HeavenOhio]

As mentioned, accounts normally stay around on one's report for "up to ten years." Her age stats (AoYA, AoOA, AAoA) should be unaffected by closing the cards.

If the car loan is her only installment loan and it's paid off, her FICO 8 scores will drop. But the good news is that the scores used for mortgages will be largely unaffected. For those scores, expect no drop or a small one.

Three open cards is generally considered optimal, and there could be a drop for going to two. But that shouldn't be a big deal.

[jetsfan2013]

Thanks all. This is good to know for her as well as my own personal finances as I decide later this year if I need to let a card or two go.

[Anonymous]

I just posted some advice on another thread where the pros and cons of closing cards came up.  See posts 4 and 5:

https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Too-Many-Credit-Cards/td-p/5541121

As you have described your girlfriend's plan, she will eventually have exactly two accounts on her report (this is after all closed accounts have fallen off several years from now).  That's not good: she'll be in a scorecard that sharply limts her upper range.  And it puts her at risk of what would happen if one of her two existing cards would be closed.

No reason to panic here, but it would benefit the two of you to research the possibility of a couple more no-annual-fee major credit cards that she likes and can imagine keeping open for years.  And also research the Share Secured Loan Technique as an option to implement as she gets closer to paying off her car loan.

The SSLT and the two new cards are nothing that she has to make a decision about now -- just something to look into in a relaxed way during the next couple years.  The folks here can describe easy techniques for keeping open cards that you almost never use (and keeping them fraud free) -- it's really no headache at all.

[SouthJamaica]

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@jetsfan2013 wrote:

My girlfriend has two credit cards she uses primarily, one opened for over 3 years (Chase Freedom) and one she has had for a little over a year now (Amex Gold - apped when I got mine). Aside from that she signed up for cards during the holidays to *take advantage* of promos like 15% off at the register etc from places like Victorias Secret, Banana Republic etc. She now has four store cards she doesn't use, doesn't owe anything on, but has already gone ahead and closed all but 1 of them (Express she plans to close at the end of this month). 

She will have 2 CC (1 with a 7.5k limit, the other with NPSL) that will report. Both are prime cards, and she really has no interest at this point in obtaining any more cards. Her only credit goal the remainder of 2019 is to pay off her car that she bought last spring.

With an AAoA of just 1 year, my gf has the option now to potentially do this. Any thoughts/suggestions on how this will impact her FICO is appreciated.

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Not everyone agrees with me but in my opinion her plan of dropping  the Express card and paying off her car loan sounds great to me. I think it would be fine for her NOT to obtain any more cards or loans. I would NOT get a card or loan if I were her. A person like her will have 800 scores for the rest of her life.

And closing the Express card will have no effect on her average age of accounts.

[Anonymous]

SouthJ and I are absolutely agreed that she doesn't have to be adding cards or loans any time soon.  I am just suggesting that you guys open yourself up the possibility of researching it.

Having exactly two cards and nothing else on your reports unfortunately does not ensure you will have two cards for life.  One or both could be closed by an issuer down the road.  You can also lose your wallet -- which is something to expect as a certainty at some point.  Having a third or fourth card in your shoebox makes that loss much less irritating while the issuer sends you new cards. 

And we have a lot of evidence from FICO's published papers that they limit a person's score when he or she has a tiny number of accounts (closed and open together -- your GF's number is fine now).  This can be fixed by having just a few more accounts than two.   Furthermore some mortgage lenders refuse to lend if you have only two open accounts.  (The extra closed accounts that she has might get arounds this for some lenders.)

SouthJ and I (along with BBS and others) are certainly not pushing her to have a zillion cards -- we stay on message that these are very much unnecessary for a person to have an easy and successful credit life.