Q: I have 6 major credit cards and several department store credit cards. I want to close some of these cards but don’t want to hurt my FICO credit score of 700 – 720. Should I close the newest cards and keep the cards that are the oldest?
A: If those major credit cards are costing you money, in terms of high annual fees, then you might consider gradually closing two or three of them over a one-to-two year period. But if they’re not costing you money, then I’d strongly recommend that you just keep the cards open and simply stop using them if you have no need for them.
The reason you should not close those cards – nor close your department store cards – is that you will lower your available credit, which is a factor in determining your FICO score. Additionally, those cards are helping to establish the length of your credit history, another component of your credit score. Read the following article for information about how your credit scores are calculated and tips on boosting your FICO scores.
There is a lot of misinformation about what goes into your credit score. However, Fair Isaac officials have said many times that this is the heart of what happens: Your credit files – currently those from Equifax and TransUnion – are reviewed. Certain information (roughly 22 items) about how you’ve managed your credit is statistically analyzed.
Ultimately, five different categories are weighted to produce your FICO score. Here is the breakdown of those five areas that contribute to your FICO score:
The Formula That Governs Your FICO Score
1. Payment History: Approximately 35% of your score is based on this category.
2. Amounts Owed: About 30% of your score is based on this category.
3. Length of Credit History: Roughly 15% of your score is based on this category.
4. New Credit: Around 10% of your score is based on this category.
5. Types of Credit in Use: About 10% of your credit score is based on this category.
Based on this information, as well as other advice FICO freely disseminates on its website (http://www.myfico.com) and elsewhere, you can draw some good general conclusions about what actions can help your credit – and what could hurt it. For example, to increase your credit scores:
Pay Your Bills on Time
Payment track record is the largest component of your FICO score
Even if you must make “minimum” payments, do it!
One late payment can drop your FICO score by 60 to 110 points
Maintain Low Credit Card Balances
Don’t “max out” any cards
Try to not to use up too much of your available credit limit
Spread out debt over several cards instead of carrying big balances
Keep Your Older, Established Accounts Open
Longer credit history is scored favorably
Resist the urge to close an account when you pay it off
Closing accounts can sometimes lower your FICO credit scores
Lynnette Khalfani-Cox, The Money Coach®, is a personal finance expert, speaker, and author of 15 money-management books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom.
Lynnette has been seen on more than 1,000 TV segments nationwide, including television appearances on Oprah, Dr. Phil, The Dr. Oz Show, The Steve Harvey Show, Good Morning America, The TODAY Show and many more.
All information on this blog is for educational purposes only. Lynnette Khalfani-Cox, The Money Coach, is not a certified financial planner, registered investment adviser, or attorney. If you need specialty financial, investment or legal advice, please consult the appropriate professional. Advertising Disclosure: This site may accept advertising, affiliate payments or other forms of compensation from companies mentioned in articles. This compensation may impact how and where products and companies appear on this site. AskTheMoneyCoach™ and Lynnette Khalfani-Cox, The Money Coach® are trademarks of TheMoneyCoach.net, LLC.