When was the last time you pulled out your credit cards, had a good long look at all of them, and asked, "What have you done for me lately?" I recently decided to cancel one of my credit card accounts, and it was special because it was in fact my oldest active card. I got that credit card back in 2010, when I was just two years out of graduate school and in the early years of my old career.
A lot has changed since then, and the credit card was no longer serving me. It had a very low credit limit, and the issuer refused my requests for an increase. It didn't offer very good benefits. And to add insult to injury, it had an annual fee. I hadn't even used the card in a few years, but continued to pay that fee, just to keep the account active. But after paying off all my credit cards last year and whipping my finances into shape, I was done being annoyed about this card. I closed the account, and waited for the fallout.
A very inconsequential dip
I have spent the last few weeks since canceling the card on the edge of my proverbial seat, anxious to see the hit to my credit score. This morning, I signed into one of my bank accounts, as one of the benefits given to me as a customer is the ability to see my FICO® Score every month, both on the website and in the bank's app. It's finally been updated, and I have my answer. *drumroll*
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Two points. My FICO® Score went down a measly TWO POINTS.
And I know the account closure was likely to blame, as there were no other significant changes to my credit during that month. Plus, my bank offered the following note to explain the change:
"FICO® Scores consider the age of a person's oldest revolving account and/or the average age of revolving accounts. Your score was impacted by the relatively low age of your oldest revolving account and/or the average age of your revolving accounts."
In fact, credit history represents 15% of a FICO® Score, which is why I took my time deciding whether I wanted to close this account.
I expected this outcome
Truth be told, I wasn't worried too much about the effect on my score. My credit score was already in the "exceptional" range for FICO (800-850), thanks to my efforts last year. And I knew that if I lost a handful of points, it wouldn't have a real impact on my finances at this time. I don't have any current need to borrow money, as I've just opened two new (and excellent) credit cards since last fall, and while I am hoping to apply for a mortgage loan next year, that's a long way off. And besides, this score dip isn't forever. I can keep making the right moves to keep my credit score in good shape.
Care and feeding of your credit score
Your credit score is pretty darn important if you're hoping to borrow money at any point. For you, that could be getting a mortgage loan, buying a car, or getting that awesome travel credit card to earn points toward future travel. So how can you ensure your credit score is in good shape? Try these tips:
- Keep old accounts open: YES, I know you just read about me closing my oldest credit card. However, this was not a choice I made lightly, and in fact, through all my years of revolving debt and a lower credit score, I kept that card open to give my score the best shot possible. I waited until I had a score in the "exceptional" range to close it.
- Pay your bills on time: This move kept my credit score above 700, even with a lot of debt. So don't discount its significance. Payment history represents a whopping 35% of your FICO® Score.
- Give your credit report a read-through: If it's been a while since you looked at your credit report, now's a good time. You can get it free every week for the rest of the year! Look for old delinquent accounts that should've fallen off your report by now, and ones that you aren't yours -- credit report errors are common. If you can show the credit bureaus that there's been a mistake, you can have it removed, bumping your score.
I have no plans to cancel any other credit cards at this point. But I am glad I managed to close this one with minimal drama (other than impatiently waiting for an updated credit score). If you're considering closing a credit card account, especially an old one, approach with caution, and be aware of the risk of a minor drop to your credit score as a result.
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