Q: In a recent column, you talked about how to pay off non-deductible debt, like credit card debt. In the column, you said canceling credit cards could have a drastic negative effect on my credit score.
I don’t understand this. I always thought getting rid of those extra lines of open credit would help my credit score. In fact, several years ago, I had too many open lines as a result of buying furniture on a “12 months same as cash” line of credit. The accounts were never canceled after I paid off the furniture (thanks to my ignorance).
Now I’ve canceled them. Was that a mistake? Thanks in advance for your answer. Keep the good columns coming!
A: There are a couple of ways that canceling a credit card account can hurt your credit score, according to MyFico.com, a website that is a joint venture between Fair Isaac, the company that created the credit score and Equifax, one of the three major credit reporting bureaus.
First, part of your credit score is based on how long you’ve had credit accounts opened. So, a credit card with a zero balance that has been opened for 20 years will help your credit score more than a credit card account that has only been opened 6 months, 2 years, 5 years, or even 10 years.
The longer you’re able to manage a particular credit account — and that means make at least the minimum payment on time — the better.
But some people think they should shut down their credit lines as soon as possible, even if they have a balance on the account. If there is a balance and you “close” the account, it will really ding your credit score.
Too many open lines of credit can damage your account as well, which is why you should open new credit card accounts judiciously. Getting a 10 percent discount on your first purchase is probably no longer a good enough reason to open a new line of credit. Once you have at least one major credit card, you’re not necessarily better off by opening a handful of store credit cards.
When you have a “12 months same as cash” line of credit open, it should close once you have paid off the furniture. That’s not quite the same as closing a credit card, which will generally offer you an unending stream of credit as long as you properly manage the account.
For more information on credit history and credit scores, go to myfico.com and read up.
Published: Apr 29, 2005
[…] Canceling Credit Cards Affects Credit … – 29.04.2005 · Canceling Credit Cards Affects Credit Score. … you said canceling credit cards could have a drastic negative effect on my credit score. […]