Unfortunately this is not true! Alot of everyday things depend on your FICO: Apartment Renting, Car Loans, Car/Home insurance, and even Job Applications.

We bought a house, but the loan was from our small town banker and they take you and your history into account, as well as your credit rating.

And, as to closing accounts – whenever I get my credit reports, all my accounts are listed, from the beginning on. They all say “closed by customer” or the like. Now I am retired, have had my cc number burgled, filed a police report and thus was able to freeze my credit permanently for free. No more debt for me.

Good article, thank you.

To add to the confusion, Fair-Isaac puts everyone into “buckets” based on their length of credit history and average age of credit account and whether you have any significant dings on your history (such as bankruptcy, defaults, etc.) In calculating your credit score, you’re actually competing against the other people in your “bucket”. Each bucket has a maximum and minimum FICO score and those in higher buckets (i.e. longer credit/cleaner history) have very little leeway in terms of negative events on their account. In other words, if you’re in a higher bucket, positive events won’t cause your score to go up much, but negative events could cause your score to fall by more than expected. On the other hand if, you’re in a lower bucket, the opposite tends to be true (negative events have little effect, while positive events have a larger effect).

For those who are actually interested in learning about Fair-Isaac’s confusing system, I strongly recommend the myfico.com forums. You can search for “buckets”, or the last time I checked, there were a couple of threads on how to get a score over 800 (with a bunch of posters who seem to have actually figured out the system). I’m nerdy, though, so I thought it was all very interesting. Others mind find trying to figure out the system frustrating or boring.

I could still use some extra advice though. My husband and I just in the last week paid off our only credit card. We’ve had this card for several years now, and the interest rate went up drastically on it. I am hesitant to use it anymore because of the high interest rate and since it is not a rewards card of any kind.

These are the questions that I have:

Would it be wise to apply for a second credit card with a better rate and one that is a rewards card? Would it be beneficial to use a new card such as this and never use the old card again, or should we use the old card every once in awhile for small things while using the rewards card as our main card? Would our credit score be affected if we never used the old card again?

One more thing… we tried to apply for a new credit card in the last month, and we were turned down seemingly because we are new homeowners. How do you recommend getting past that problem if you were to recommend getting a new card?

Thanks in advance!

As a loan officer, and a credit repair consultant, I can tell you this is NOT the case.

You are not PENALIZED for closing the account. You just lose the “point support” that you’ve built up by having the account open over time. And that remains until you replace it with another card – OVER TIME.

Time is the factor in gaining points with a credit card. The first 6 months with a new card, you actually LOSE points (penalty), until you establish a pattern of having it report “satisfactory” for 6 months. You DO NOT have to charge anything to it. It will report as satisfactory with any balance, even $0, as long as payments are made on time. After 6 months you regain the points you lost, and after 12 months you start gaining points. And you gain even more, the longer you own the card, and are reporting as “satisfactory” each and every month. If you close the account, you lose those points you’ve accumulated, which are supporting the higher score.

If you’re credit is otherwise good, the bump will be minimal, if it even occurs. Credit scores are driven mostly by pay history and presence or absence of derogatory public records (BK, FC, judgements, garnishments, etc.). A loan noted as PAID SATISFACTORILY has much more impact than credit utilization in otherwise good credit profiles.

No one but the credit repositories know what the exact mix is on credit scores, and they can and do change. It’s really hard trying to out guess the system here.

The overriding goal should be to reduce or eliminate debt by what ever means makes you comfortable. Even if your scores fall by 10 points, that may be preferable to having an open line that could be subject to identity theft, or to the implementation of an admin fee that you didn’t know about since you probably won’t open your mail from the creditor of an unused account. An upaid admin fee will be marked as a derogatory or worse, and that’ll alone will affect your scores more heavily than lower utilization.

The only downside of the cash basis is that a lower credit score results in higher insurance premiums. As more of us become debt free, and as Dave keeps talking about this issue, we should hopefully see an Insurance agency that recognizes the situation we’re in and realizes that debt-free people are responsible and a low risk group.

I’m wondering if your card does have an annual fee how this should change your decision to cancel a card?

With all of the changing bank policies right now many people are faced with closing credit card accounts to avoid annual fees or terrible banking practices. I closed my Chase credit card after being a loyal WaMu credit card holder because I had read so many horrible things about them and I didn’t want to wait around and find out what kinds of fees they would invent to charge me.

“The big one is that canceling a card results in a negative bump on your credit score.”

This is often NOT TRUE. There is no penalty for closing a card. Two possible ways it might hurt your score are:

1) Lower average age of credit account
2) Higher utilization

If the card is newer than your average card, 1) will keep your credit score the same at worst. It could improve.

2) Closing a card will, by definition, increase your credit utilization %. However, if you have a lot of available credit, the impact will be minimal. And because the effect of utilization % on your score is not continuous, you very well may still end up in the same utilization % bin, in which case your score will remain unchanged.

that is nothing to be upset about… the banks are not making more money off this change, they will be making less money..
for instance, if you have $100 on the credit card, before the change, the minimum payment would have been $2. Now, it is $5. interest on $98 is more than $95.. with the change, you are paying your card off faster, and the bank is getting less money in interest.