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Most savvy consumers know about the FICO score -- the three-digit number that companies use to determine interest rates.
Even though Fair
Isaac has published the main
factors that affect FICO credit scores, many still wonder what will happen to their credit scores if they cancel credit cards or sign up for
new ones.
With no clear-cut answers as to how specific actions impact a score, consumers must resort to trial-and-error credit management,
or they do nothing for fear of making any changes that might damage their credit ratings.
We decided to touch base with readers to see what they wanted to know about FICO scores. From the responses to our
newsletter call for questions, we learned that many people wondered about the impact of
closing credit cards and keeping inactive cards, as well as improving their scores and re-establishing credit.
We posed five reader questions to Fair Isaac product support manager Barry Paperno, who has worked for the credit-score keeper
since 1995. Here he talks about the ins and outs of closing credit card accounts. (His discussion of the effects of foreclosure and how to build a good
credit score will be reported in an upcoming article.)
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| Credit scoring misconceptions |
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| A FICO expert discusses popular misunderstandings about closing accounts and department-store cards versus bank credit cards. |
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| 5 questions for Fair Isaac expert |
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Will closing lesser-used low-credit limit (less than $5,000) credit cards or lines of credit harm or help our overall credit scores, given two
or three other higher-limit accounts?
 I'm going to start by providing a
couple of misconceptions that I hear regularly with regard to closing accounts. No. 1, that the FICO score penalizes you for having too
much available credit, and No. 2, that if you close an account, you lose all the history associated with that account.
It's just not true that you can have too much available credit. That by itself is never a negative with the score. Sometimes
the things you do to get too much can be a problem, such as opening a bunch of new accounts, but for the most part, that's just kind of an old
wives' tale.
In terms of eliminating the history, the short answer is, that no, it does not eliminate the history. You can have a closed
account, an account you haven't used for years, and if it's still on your credit report, if that account is 20 years old, you're getting credit
for having 20 years of history for that account. As long as it's on the report, you get credit for the history.
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