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Canceling unused credit cards - effect on FICO
Old 10-16-2011, 12:02 PM   #1
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Canceling unused credit cards - effect on FICO

I want to cancel 2 cards I have had for years with 0 ballance and get one Costco/AM Express card as a replacement. Will dropping the old cards have a negative effect my FICO ? . It is currently quite high , and I want to keep it that way , for a possible loan on a rental property.
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Old 10-16-2011, 12:10 PM   #2
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Quote:
Originally Posted by Lakewood90712 View Post
I want to cancel 2 cards I have had for years with 0 ballance and get one Costco/AM Express card as a replacement. Will dropping the old cards have a negative effect my FICO ? . It is currently quite high , and I want to keep it that way , for a possible loan on a rental property.
Don't use credit anymore, so I wouldn't worry personally. As credit ratios go and history, I think there is only a small % it would go down. If I had to guess, 20-30 pts tops.

Why not just do the loan stuff then drop them?
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Old 10-16-2011, 12:56 PM   #3
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If it's really high it will probably still be quite high but there are three potential consequences:

1 -- your "available credit" will go down so your utilization ratio will increase. Now if you have very low credit usage already and pay in full each month, this will be a minor hit and may not be a hit at all.

2 -- The "average age" of your open accounts will decrease -- the older the account you close, the more the "average age" will decrease and the bigger the hit -- but probably still not major.

3 -- Opening a new account and applying for new credit can put a "hard pull" on your account which can impact the score. (Again, if you've not applied for any other credit in the last two years, the impact will be small.)

I doubt that your score would drop all that much -- and if that would still leave you in "prime" territory, say 750+ on the FICO, it's much ado about nothing.
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Old 10-16-2011, 01:03 PM   #4
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As far as I have read, yes it will lower your FICO score due to less credit available to you (the loss of two credit limits), and if you get the new card, a shorter account lifetime (new card replacing two older cards). Keep the old cards unless they are hindering your ability to get the credit limit you would like on the new card. And you probably should wait until you get the property loan before you change anything.

On the other hand, I think you only need about a 740 score to get some of the top rates. So if you are well above that you may be able to take the hit without affecting your loan interest rate.
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Old 10-16-2011, 01:07 PM   #5
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Why cancel the old cards instead of just leaving them idle?
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Old 10-16-2011, 02:24 PM   #6
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1 -- your "available credit" will go down so your utilization ratio will increase. Now if you have very low credit usage already and pay in full each month, this will be a minor hit and may not be a hit at all.
This depends. Utilization is based upon what is reported as your balance each month which really doesn't have anything to do with whether you pay in full each month.

let's say you have $60,000 available credit and every month you put $5000 on a credit card which you pay in full each month. Your utilization is less than 10% of your available credit.

You close two cards you don't use lowering your available credit to $40,000. Each month you put $5000 on a credit card which you pay in full. Your utilization is now more than 10% of your available credit which lowers your FICO score (which may or may not be enough to make a difference in getting a loan).

So, I wouldn't close an account if it would mean that my monthly reported balances would cause me to go over 10% overall utilization. As a practical matter, in my case, if I think I am going to be getting a loan I will pay my balance online before it gets reported so my utilization stays low.
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Old 10-16-2011, 02:32 PM   #7
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This depends. Utilization is based upon what is reported as your balance each month which really doesn't have anything to do with whether you pay in full each month.
Well, yeah, technically true. But if most people only use a tiny fraction of the available credit each month, it doesn't matter what they report (if it's accurate) -- you'd almost never show more than 10-20% utilization which is still a favorable amount for scoring.

If you occasionally made huge purchases which temporarily used (say) $30K of a $40K combined credit limit, you would just want to make sure no one needed your credit report until after you've paid that down and the next billing cycle's lower balance was reported again.
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Old 10-16-2011, 02:56 PM   #8
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I think I would do it over a period of time. Establish the new card first, after 6 months, close one old card and after another 6 months close the other old card. This way, you may see some slight movement in your FICO but I don't think enough to change the mind of any bank, assuming your score is currently in the mid to upper 700s and everything else looks good. You could also simply leave them alone, as Michael B suggested... however, I lean toward some day eliminating unused cards to reduce the likelilood of someone getting ahold of your information/identity theft. Paranoid? Maybe just a little.
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Old 10-16-2011, 03:01 PM   #9
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Never, ever cancel your oldest card.
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Old 10-16-2011, 03:20 PM   #10
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Here's a reference article from Credit Karma on the subject/consideration of closing old accounts:

The Dos and Donts of Closing Old Accounts
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Old 10-16-2011, 03:50 PM   #11
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The two I am thinking about canceling are "Airline miles" cards , and never used.

The 4 others , a normally pay in full , and seldom exceed 1/2 of the credit limit on any one card, and then it is on one card only. No mortgage , so I don't think I have exceeded 10% of my combined credit limit in over a decade. I used to buy I bonds with a credit card for cash back credits - They put a stop to that .

Two times in the last two years , I forgot to pay on time and got hit with late fees. This is actually the only time they make any money directly off me.

I have not run my credit report in years. The last time was buying a new car in 2008 , so they showed my fico then. I paid by check , so i guess they do the credit thing to see if they are taking a check from a deadbeat.

Maybe I should get off my dead, but currently overworked butt , and get a current credit report.
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