Credit Cards and FICO score
 

I don't have a bunch of credit cards. I have never been huge on amassing loads of cards....In fact, I only have 3.....and one of them isnt in my name, as it is provided by the firm for T&E, so it doesnt even show on my credit report. We don't do department store cards, either.

Focusing on my 2 "real" credit cards......

1. My credit score is fine. It isnt over 800 like some, but still just fine (above 700). I'd like to keep it that way.
2. I have had both credit cards for about 8 years now.
3. I know that closing an old account can actually hurt your credit score

Here is where I need the guidance. One of the cards has an annual fee attached to it as part of a rewards program (airline miles). However, I almost never use the card and don't really care about the miles rewards. It is a waste to pay the annual fee, but I dont want to cancel.

Assume that the credit card company offers a no-fee credit card, sans rewards program. If I switch from my current card to the new, no fee version, does that constitute "closing" my account and will it ding my FICO score?

I called the company to ask but the customer service rep said that they do not comment on credit scores. I guess I could call one of the Big 3 and ask how they calculate, but does anyone here have experience with this?

I am not an expert in this at all, so take this all with the appropriate grain of salt.

I have been told by people in the know that opening and closing credit cards causes only minor dings to your credit, to the tune of only a point or two.

I frequently open and close cards within a few months period just to take advantage of whatever freebie is offered (15,000 miles, 10% off first purchase, whatever). My credit rating is as yours, quite healthy. When I check my rating periodically, I do get the "too many cards opened in last 12 months" message, but since my number is well over 700, I don't really care.

Personal opinion: you're far worse to be actually paying out annual fees than accepting whatever minor hit you might take for closing a card.

My 2 cents.

Could you maybe threaten to close the account unless they wave your annual fee?

I have no clue how any of this is calculated and I doubt you'll be able to find any sort of calculation on how this works out. Credit is a mystery to me and I think it rather absurd that you don't have access to it but anyone else with your permission can see it and then not discuss it with you.

Wow, really? Thanks for the info. I wonder if anyone else can attest to the minor ding. I had always assumed it would really "hurt" the score, but admittedly, I have never heard it quantified before. In my head, I pictured something like a 30 point drop....which, now that I think about it, would be pretty severe.

If that is really the case, I will close it today. After all, if my score drops from 799 to 798, what do I care?

FYI, you can request a full report of your credit once a year from each of the 3 credit agencies at no charge.

I hadnt thought of that, but I am sure you can. In the early 2000s I told them that they needed to lower the APR or else I would get really mad. For whatever reason, they listened and lowered the rate.

We try to be pretty good at not carrying a balance, so truthfully, even the monthly APR isn't a huge issue to me. I just don't want to pay any more annual fees.

For what it's worth, here's an interesting article on the topic from just a few months ago that came up via Google.

http://getrichslowly.org/blog/2008/0...a-credit-card/

Just close the account and quit being such a baby about it.

Does that include your actual score? I thought it was just the report (which is also very telling, to be sure).

Surfah, I would do as tex says and pull your report every now and then. In the past, I have found errors, including:

1. A series of unpaid medical bills for surgeries. I didnt have any surgery or medical bills, so that one was easy to get removed.
2. A late payment for some bank loan.....attributed to me but should have been attritbuted to someone living in Oklahoma. I had never taken out any such loan.
3. Department store charge cards that I never opened.

It is pretty safe to say that the credit agencies are not perfect and need a little help from time to time.

Whatever you say, Mr Chapter 13.

Just because your score is shot doesnt mean I want mine to be that way.

No, unfortunately it doesn't, but you can usually buy it cheaply ($10 or so) which is what institutions have to do when they run your credit.

As it happens, one my cards provides my credit score to me free of charge (can't remember which credit agency they use), so I don't have to worry about that.

I work in the Credit Card industry, and I used to work at one of the three credit bureaus, although I don't know all the ins and outs of the FICO score. Very few people do know the details, it is a closely guarded secret. If you call any of the three bureaus, they won't tell you how things will impact your score, for two reasons. First, FICO doesn't like information like this made public, since it makes it easier to game the system. Second, no one you speak to at the bureaus will know anything useful.

Having said that, closing a card won't impact your score much, with one exception that I will elaborate on below. If the issuer closes your card, it will usually ding you quite a bit, since they usually close your card because you are a bad customer. If you open a card, your credit will be hurt somewhat less, but still more than if you close a card, since opening a card is a possible sign of financial distress. The only time that closing a card will really hurt you is if you carry a high balance on all your other cards. Closing a card will then increase your utilization (balance divided by credit limit). If your utilization gets high, your score will suffer greatly. If your other cards carry no balances, I would be very surprised if your score dropped by 5 points, if at all. Any drop should resolve itself within a few months.

It may be worth it to ask for the fee to be waived, but issuers are more reluctant to do that these days (we're feeling the financial pinch), and it would only be a one year fix. They aren't going to waive it completely for you. If you don't use the card, they probably won't waive the fee, as they don't have much incentive to keep you around.

As far as the new card/transfer card thing, it depends on the issuer and the product. There are some cards that we can just transfer to a different product without closing the card, and some that we can't. Since this is an airline card, though, I would guess that they will have to close it.

I would just close it, unless it is a US Airways, Alaska Airlines, Hawaiian Airlines, or Lufthansa card. In that case, I would encourage you to open up 3 or 4 more of them and carry very large balances. It would really help me out.

I have a monthly credit monitoring service and I use my one free credit report each year. However, that is just a report and you have to pay for your FICO score.

Interesting to note to is that for different loans or credits FICO scores are adjusted. When you apply for a car loan the sample from which they draw your credit worthiness is different than say a home.

This is the proper advice. As long as on your credit report it says: "Closed by Consumer" and not "Closed by creditor" You will be fine, not a huge hit at all. In fact it could potentially help your score if your available credit limit is say 20,000. That is higher risk because at any time you can go out and add 20k to your credit profile. That is why most people tell you to have your balance to limit ratio at about 50%.

Are you sure you are not over 800? I mean everyone I talk to is. ;)

I wish I were above 800.

Truthfully, I seem to have maxed out. I hit a ceiling and don't seem to move up or down either way.

What are the people at 800 doing that the ones at 730-760 are not? I know the rate benefit differential at that level is going to be negligible, but out of curiosity, how do some folks get up past 800? Do I have to open a few more cards, use them, and pay them off on time?

I have only pulled about 2000 credit reports in my lifetime and I have seen over 800, once or twice. So you may want to ask BDB because she doesnt use credit cards, has a co-signer on her car and is still over 800 which is amazing.

Hard to say without looking at your credit file. You said you only have two cards. If you put a lot of charges on one of them, even if you are paying it off every month, your utilization might be a little high. In this case, having a couple of additional cards with empty balances could help, but it is not a short-term fix. Opening up more cards will cause your score to go down for the next year or so, maybe a little longer.

Opening any new account will cause your score to go down for a while, so if you just got a car loan 6 months ago, you just need to wait for another year or so.

How long have you had credit in general, and your mortgage? If it is a relatively short time (less than 7 years for credit, and less than 2 years on your mortgage), it will be tougher to get up above 800.

Obviously, it is tough to get above 800 if you have anything derogatory. If you were 30 days late on your Sears card 2 years ago, or never paid your last electric bill which went to collections 5 years ago, you will have to wait for those to roll off.

For most things, there is little to know difference between a 770 and an 810, but occasionally there are benefits. One "hidden" benefit is that it is not uncommon for marketers to take anyone over 800 off their mailing lists. They need credit so little that almost none of them respond. It is not uncommon to mail 1,000 people with 800+ FICO and have, on average, one of them respond.

How long does it take negative ticks to roll off your credit score?

Like DDD, I'm hoping to push my 799 score over the 800 threshold.

My experience is a little different than this, although I agree that 800+ is rare. Of people who apply for credit, we see about 2% to 3% that have a score of 800 or over. We may skew a little high.

My credit score is 805 as of a month ago.

One thing that probably helps (I don't know for sure) is that I have some very high limits on a bunch of credit cards that I never use. I have one card with a $30K limit and another with a $40K limit and several other with about $15K limits. I don't ever carry a balance. I think one factor is the debt to available credit ratio and if you keep that very, very low I believe it helps your score.

With a home purchase and then a refi within the past year, we had our scores checked a couple of times, and averaged in the low 800s. The loan-to-value on our house is fairly low, we have three credit cards with limits around $40K but which we pay off each month (we rotate their use to maximize AA, Southwest and Marriott rewards), and no other debt. I joke a lot otherwise, but I'm married to a very thrifty woman, for which I give daily thanks.

The larger driver in terms of a "ding" on your credit report will be the utilization of your revolving trades. Higher utilized customers tend to be significantly higher risk. For example, you have 2 cards with $10K limits and carry a total balance of $4K on one of your cards making your utilization 20% ($4K / $20K in total credit available). You decide to close the other card and the next time the bureaus refresh your scores your utilization suddenly calculates at 40% and you appear as higher risk thus the "ding" to your bureau score. If you convert and keep your available credit limit then the impact should be minimal. The age of your oldest trade is also fairly important but not as much in terms of negative impact IMO. If your other card is older then this may be of little or no consequence.

All in all, I think the impact would be minimal if you convert the card.

What about applying to increase your credit limit? I have an AMEX balance that is at 3.99%, so I haven't bothered to pay it off. I opened the account when we had an emergency in residency and I've just been paying minimum payments since then. They recently informed me that they have decreased my credit limit on the account (meaning I now owe about 80% of my limit); I called and they couldn't give any reason. I wouldn't care, except that we're about to buy a house in the next few months and I would like my credit rating as high as possible. I have a higher income than they think, so I'm sure I could qualify for a higher limit and I've never made a late payment. Does it hurt your credit score to apply for an increase in limit? If so, which is worse--high debt-to-limit ratio or applying for an increase?

Related Question
 

Do using cash advances on credit cards impact credit score?

(assuming they are immediately paid off and not carried as part of balances, as discussed above)

By law (Reg B) they have to disclose the reasons for adverse action within 30 days. The only time that this isn't required is if you are in "breach of contract" - in other words delinquent. If they can't give specific reasons then they are out of compliance. This will typically happen in one of two ways:

1. Specific adverse actions are disclosed in the letter informing why they reduced your line - FAR more common b/c it is a much better customer experiance (well given the circumstances :confused: ). These adverse action reasons come from the credit scores or criteria that are used in targetting you for the action. For example, if they use FICO then there are certain variables in the model that carry the largest weight in your score being what it is and there is verbiage that corresponds with that (reason codes). When credit bureaus send a credit score it is usually accompanied with the top 4 reason codes associated with why that score is what it is.

If this is the type of letter you received and they did use a bureau score like FICO then to be FCRA compliant there would be contact information for the bureau they used so you could dispute any incorrect information on the bureau that may have led up to the score being low and hence a line reduction.

2. On rare occasion they will state in the letter that you are entitled to have reasons for adverse action disclosed to you within 30 days if you submit for it via letter or call. This isn't too common as far as I know but some do it.

3. The only exception as I said is if you were in "breach of contract" or delinquent. Banks aren't required to disclose reasons in that scenario so your letter would cite delinquency or breach of contract as the reason.

Sorry if this is confusing but I'm trying to explain it in a very simplistic way.

No.

As NorCal said, no, it won't hurt, since the bureau has no way of knowing what type of balance is on the card. All balances are reported the same way.

Having said that, it MIGHT make the bank you have the card with look on you as a higher risk. Customers who get cash advances are riskier than others, so there is a chance it could cause some minor effects at that bank. Shouldn't be anything you notice, though. For example, you might get a call if you are 5 days late on a payment, versus other people who would get a call at 30 days.

I was notified by email. I guess they're going to be sending me a letter in the next few days.

But back to my question--does it affect my credit score to apply for a limit increase? Or should I just pay it off? I could pay it down, but I'm saving for a down payment on a house, and since we don't have a house picked out yet, I'm not sure how much I'll need. I would like to have 20% to avoid the PMI.

Thanks, NCC.

I don't think so. When you make your request they will most likely pull a credit report on you which leaves a "hit" on your credit. Excessive "hits" can hurt your score but a single incident shouldn't. Keep that in mind as you're shopping around for a mortgage as well b/c as you go through the pre-qualification process a credit report will be pulled.

I hope you're not doing this to be able to buy one of those unsafe trampolines.

Do you think I'm crazy? Unsafe or not, trampolines are lawsuits waiting to happen. No way.

I dunno what specifically, but the old saying is people who can get credit don't need it. So the wife and I do things like take advantage of 90-days same as cash from time-to-time (like for furniture or electronics, average maybe once per year) and recently went for 0% for 3 years on a Toyota (50% cash paid) -- I don't guess anyone who watches sports has missed those commercials, ugh. Rather low debt to equity in the house, use credit cards but rarely carry a balance, keep the same cards a long time. Pay on time - most bills automated because I get forgetful in my old age ;)

Does 800 make a difference? Somehow I thought thresholds for deals were more like 750.

[QUOTE=NorCalCoug;294518]By law (Reg B) they have to disclose the reasons for adverse action within 30 days. The only time that this isn't required is if you are in "breach of contract" - in other words delinquent. If they can't give specific reasons then they are out of compliance. "

Lowering an un-utilized balance is NOT considered an "adverse action." It does not require compliance with Reg B - notification of the reason for adverse action.

If you called up and asked for a line increase, and they denied it, they'd have to notify you in writing why they did. But lowering an unused line is considered a positive risk avoidance action for both the company and you, and doesn't even require that they tell you they've lowered your line - except in your monthly statement.

[QUOTE=statman;295042]
Sorry, but you're wrong. A non-customer initiated line reduction on an active account in good standing is VERY much considered an adverse action and falls under Reg B.

You most certainly can lowera credit line without notification or adverse action. It depends entirely upon how how the decision is made.

IF credit scores or bureau data was used to lower the limit, an adverse action letter must be issued, but this is often not the case. Lines are often dropped simply because the person isn't using them - no internal or external credit scores used in the decision = no adverse action. I used to do it all the time. And one of my cards just did it to me.

I just read-up on it a bit & i remember what our lawyers used to quote us - First: (from 202.2)

Definition of adverse action: "(ii) A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts; "

In other words, if it DOES affect all or substantially all of my accounts - like an across-the-board reduction in unutilized credit line - and I don't use credit information in making that decision, it's not an adverse action situation and I don't need to notify the customer of anything.

The stated reasons for notifcation - as specified in Reg B - is to keep consumers informed and up-to-date about their credit information & how it is being used. If I make a lending/exposure/policy decision that is applied across the board and doesn't use credit information, I have no need to inform them. It has nothing to do with their credit...

I'm not sure any reasonably managed credit card portfolio has ever reduced lines on "all or substantially all" of the portfolio. If so then the Risk Management team needs to be fired - or hired b/c this would suggest a lack of true Risk Management as far as I'm concerned. Any line reduction strategy will be very targeted in nature due to the revenue and profitability implications of taking such action. You're comparing apples to oranges. I'm assuming that it wasn't a portfolio-wide reduction b/c there's no precedent for such drastic action that I'm aware of on a major card portfolio in the 10+ years I've spent working on various Top 10 US card portfolios. I view quarterly reports from VISA on industry trends and line reduction strategies only target a very small proportion of total accounts on the portfolio (<5%) on average - EVEN in this horrible credit environment where banks have ramped up such initiatives to try and mitigate losses.

Like I said previously, the laws and regulations are different in the case of inactive or delinquent accounts but this doesn't appear to be the case. Perhaps the original poster who posed the question has a card with a small bank or credit union and that type of drastic action may be the case (portfolio-wide reduction of credit line) but I assure you that it's not a card from a major issuer if it is. An adverse action letter would otherwise be required citing specific reasons (as required by Reg B) for the action and contact information if third party information, i.e. - credit bureau, etc., is used in the decision (as required by FCRA).

I've literally done millions of them - with the full constent of OCC regulators. We had strategies installed in our automated systems that would reduce lines for customers that weren't using them. The line reductions didn't happen to all accounts, but they potentially could have - almost all accounts in a given portfolio were subject to them. As long as that was the case - that most cards fell into the automated decision engine - and that no credit data was used other than balance utilization & balance history, our regulators were perfectly fine with it. In fact they liked it. We could show that it curtailed instances of run-away credit for customers whose credit suddenly deteriorated. And we got their lines lowered before their credit actually got worse.

BTW - I think that another legal argument used in doing these without adverse action notification is that if we could show in each case that there were long periods where only a fraction of the line was used, that 1) this portion of the line was essentially 'inactive,' and also that by lowering the line to closer to what was actually used didn't inherently affect the status quo of the credit relationship. In other words, if a customer only ever used a maximum of $2000 of a $25000 line, and we dropped their line to $8000, we weren't really impacting their use of credit significantly. And we could show with hard data that if a customer with that credit behavior ever was to suddenly increase his use of credit dramatically, the probability of charge-off rose exponentially. Lowering lines was good for us and good for them.

Our lawyers said it was all kosher, and the OCC agreed. I'm sure they had opinion letters from everyone and their dog okaying the process. We didn't walk across the street without Legal's okay...

Honestly, I'm not going to debate it with you. I devote enough of my life already to the subject and I'm plenty comfortable enough with my experience to frankly not care to debate it with an anonymous poster on a forum I frequent for leisure. The original poster can do what he will with the information I provided.