How Canceling a Credit Card Effects Your Credit
Be cautious, if you’re taking inventory of your credit cards and deciding to let some go. Breaking up with a credit card can negatively effect your credit score. Here are a few pointers on what makes up your credit score, and why your oldest cards are the ones you want to keep.
FICO is the most common credit score that lenders use. A FICO score can be found on your credit report (along with your student loan debt) and is based on five different factors:
Payment History (35%)
Total Amounts Owed (30%)
Length of Credit History (15%)
New Credit (10%)
Type of Credit in Use (10%)
If you close any card that still has a balance, your credit and credit limit are reported as $0. In my experience, $0 is never a good thing. It will appear to people (like lenders) looking at your record that you’ve maxed out your accounts, which can be bad news for your credit score.
Bottom line: do not close out all your credit cards. Keep at least one open and use it responsibly. And if you do want to close an account, make sure it’s not the one you’ve had in your wallet the longest. These people really like history.
If you don’t know your score you can go to myfico.com- but first check with your bank online. Many banks these days are providing this information for free. I know mine does! A credit score of 720 or higher gets you the best money can buy.
If you want to buy a house or start a business someday, it’s good practice to keep on top of your credit score. Knowing your score, and how it’s calculated will help you in maintaining a good credit score on your credit report.
For more tips like this one, get my book!