How to improve an already good credit score
March 3, 2010 11:02 PM Subscribe
Several months ago, one of my banks informed me that they would be closing my credit card account due to longterm inactivity. Because the card I had with them was my very first and therefore oldest line of credit, closing the account dropped my 778 credit score by nearly 25 points (according to Credit Karma). I know my score is still respectable, but I'm determined to restore it anyhow. Thus far, however, I've been unable to find any information that would be useful to a person such as myself, who has always been fiscally responsible. If I've never been late with a payment, never maxed out my cards, always pay off my balances in full, and don't have any other loans or debts to my name, what can I do to improve my score?
It may help to know that Credit Karma is wrong. Canceling a card won't hurt your credit score for at least ten years, and even then it will be minimal.
Anyway, you're already doing everything you can do. Don't worry so much about keeping your score high. Just act like a responsible adult, and the good score will follow. Remember, for all the secrecy and arbitrary rules, at the end of the day the credit companies use this system because it's the best thing they have for trying to guess how good a credit risk you are. If you're a pretty good risk, the number should usually reflect that.
posted by kingjoeshmoe at 11:36 PM on March 3, 2010 [3 favorites]
Anyway, you're already doing everything you can do. Don't worry so much about keeping your score high. Just act like a responsible adult, and the good score will follow. Remember, for all the secrecy and arbitrary rules, at the end of the day the credit companies use this system because it's the best thing they have for trying to guess how good a credit risk you are. If you're a pretty good risk, the number should usually reflect that.
posted by kingjoeshmoe at 11:36 PM on March 3, 2010 [3 favorites]
Or, on should've previewed, everything Zephyr said.
posted by kingjoeshmoe at 11:37 PM on March 3, 2010
posted by kingjoeshmoe at 11:37 PM on March 3, 2010
By the way, I would be more worried about your score if that card that's closed out made up a significant percentage of the credit available to you. e.g. it had a limit of $10,000 and all your other lines of credit add up to $10,000 meaning you've cut your borrowing power in half.
posted by zephyr_words at 11:37 PM on March 3, 2010
posted by zephyr_words at 11:37 PM on March 3, 2010
The link above mentions, 3 paragraphs in, why closing accounts *does* affect your score- Your total available credit goes down, so if you have any debt on any card, your ratio of credit used goes up:
Where you may get into trouble right now is in the "amounts owed" area, which accounts for another 30% of your score. One important element of that is what's called credit-card utilization — that is, the size of the balances you carry on your credit cards as a percentage of the amount you could theoretically borrow on all your cards. Imagine, for example, that you have two credit cards with $5,000 limits on each, with a $500 balance on one and a zero balance on the other. If you close the zero-balance account, you've gone from using 5% of your available credit (the $10,000 total on your cards) to 10% (of the $5,000 on the remaining card) — not a big deal in credit-card terms. In low-utilization situations such as that, closing an account should have virtually no effect on your credit score, says Watts. "No harm, no foul," he says.
But let's say instead that you have three $5,000-limit cards — one with a $3,000 balance and the others with none — and you drop your two zero-balance cards. In this case, your credit-card utilization rate will go from 20% to 60% — a noticeable amount that will certainly ding your credit score. How much? Can't say, since we're back to the black-box credit-scoring system.
The answer is probably to just get another new card.
posted by drjimmy11 at 11:42 PM on March 3, 2010
Where you may get into trouble right now is in the "amounts owed" area, which accounts for another 30% of your score. One important element of that is what's called credit-card utilization — that is, the size of the balances you carry on your credit cards as a percentage of the amount you could theoretically borrow on all your cards. Imagine, for example, that you have two credit cards with $5,000 limits on each, with a $500 balance on one and a zero balance on the other. If you close the zero-balance account, you've gone from using 5% of your available credit (the $10,000 total on your cards) to 10% (of the $5,000 on the remaining card) — not a big deal in credit-card terms. In low-utilization situations such as that, closing an account should have virtually no effect on your credit score, says Watts. "No harm, no foul," he says.
But let's say instead that you have three $5,000-limit cards — one with a $3,000 balance and the others with none — and you drop your two zero-balance cards. In this case, your credit-card utilization rate will go from 20% to 60% — a noticeable amount that will certainly ding your credit score. How much? Can't say, since we're back to the black-box credit-scoring system.
The answer is probably to just get another new card.
posted by drjimmy11 at 11:42 PM on March 3, 2010
For future reference, they tried to close out my backup credit card due to inactivity. I protested and kept the card, and I then set up my Netflix account and one other small regular monthly bill like that to be billed to that card. There is always some activity now on the card, and they have not tried to close it since.
posted by gudrun at 12:02 AM on March 4, 2010
posted by gudrun at 12:02 AM on March 4, 2010
It may help to know that Credit Karma is wrong. Canceling a card won't hurt your credit score for at least ten years..
in reality, this really shouldn't effect your score that much even if it's your oldest card
I disagree with these statements. The FICO algorithm is a secret, complex algorithm, and I think the representative was explaining how it probably should work rather than how it probably does. When I closed my oldest credit card account, it did have a negative impact on my credit score, and the list of explanations that follow the credit score report clearly indicated that it was because the length of my oldest account had dropped (before the account was closed, it was considered a "positive" that the length of my oldest account was X years X months. After the account was closed, that number dropped and it was considered neither a positive or negative). Also, my debt ratio was essentially unchanged, so the only change was the "length of oldest account" variable. I'd recommend contacting the bank to see if they can stop the account from being closed, and setting up something like gudrun.
posted by helios at 4:20 AM on March 4, 2010 [1 favorite]
in reality, this really shouldn't effect your score that much even if it's your oldest card
I disagree with these statements. The FICO algorithm is a secret, complex algorithm, and I think the representative was explaining how it probably should work rather than how it probably does. When I closed my oldest credit card account, it did have a negative impact on my credit score, and the list of explanations that follow the credit score report clearly indicated that it was because the length of my oldest account had dropped (before the account was closed, it was considered a "positive" that the length of my oldest account was X years X months. After the account was closed, that number dropped and it was considered neither a positive or negative). Also, my debt ratio was essentially unchanged, so the only change was the "length of oldest account" variable. I'd recommend contacting the bank to see if they can stop the account from being closed, and setting up something like gudrun.
posted by helios at 4:20 AM on March 4, 2010 [1 favorite]
helios is right -- the FICO algorithms like to see age on accounts. I would say go straight to creditboards.com forum as the folks there are rabid about improving their scores (they're even part of many peoples' signatures). There should be some good advice. Generally you will want to use your cards as much as possible, while keeping balances low and paid off -- though some will caution against having too much open credit since that is a risk too. Also there is a general consensus that you should have about 4 lines of revolving credit. NEVER be 30 days late with any payments, especially a mortgage, as that's a killer right there.
posted by crapmatic at 4:51 AM on March 4, 2010
posted by crapmatic at 4:51 AM on March 4, 2010
zephyr_words is right on target - your score likely dropped because when you cancelled that card, the percentage of your available credit that you are currently using "went up" not because you have more debt, but because the credit available went down - thus your percentage went up.
Regardless, 778 is a great credit score, and any bank that checks your credit rating is going to also see that you haven't been late with payments and as suchare a great credit risk.
I wouldn't worry --
Cheers,
Cactus
posted by cactus86 at 5:03 AM on March 4, 2010
Regardless, 778 is a great credit score, and any bank that checks your credit rating is going to also see that you haven't been late with payments and as suchare a great credit risk.
I wouldn't worry --
Cheers,
Cactus
posted by cactus86 at 5:03 AM on March 4, 2010
Regardless, 778 is a great credit score, and any bank that checks your credit rating is going to also see that you haven't been late with payments and as suchare a great credit risk.
Seconding this. That's about what my score is, and when I applied for a new card with a super-low fixed interest rate (to roll over part of another card's balance) I was approved almost instantly.
Your score may have dipped a bit because of that card closing, but that tends to be temporary, in my experience. About the only thing you can do to improve your score at this rate is check your credit report itself, and make sure that there aren't any weird lingering mistakes on it ("...wait, why are they still showing my student loan on here? I paid that off three years ago" or "I haven't lived in Philadelphia since April, they need to change my current address") and fix them. But I suspect you won't find anything weird on your report, so you're still good.
posted by EmpressCallipygos at 5:49 AM on March 4, 2010
Seconding this. That's about what my score is, and when I applied for a new card with a super-low fixed interest rate (to roll over part of another card's balance) I was approved almost instantly.
Your score may have dipped a bit because of that card closing, but that tends to be temporary, in my experience. About the only thing you can do to improve your score at this rate is check your credit report itself, and make sure that there aren't any weird lingering mistakes on it ("...wait, why are they still showing my student loan on here? I paid that off three years ago" or "I haven't lived in Philadelphia since April, they need to change my current address") and fix them. But I suspect you won't find anything weird on your report, so you're still good.
posted by EmpressCallipygos at 5:49 AM on March 4, 2010
Look, ask yourself what this number actually represents to you. It's not a high score on a video game, or about bragging rights. It represents your risk to creditors, and your score still indicates that you are a very low risk. This means that you'll still have access to all sorts of low-interest credit cards, and good rates on loans. That's what matters. Don't sweat it.
posted by chrisamiller at 8:02 AM on March 4, 2010
posted by chrisamiller at 8:02 AM on March 4, 2010
I see nothing on the Credit Karma site that indicates that they're telling you real, actual FICO scores. The number you saw drop might not be a FICO score, but some other score with different voodoo.
At any rate, the peace of mind you get from not having a stray credit card number floating around that could be hijacked because you aren't keeping tabs on it far should far outweigh the slight ding from closing the account.
posted by sageleaf at 9:02 AM on March 4, 2010
At any rate, the peace of mind you get from not having a stray credit card number floating around that could be hijacked because you aren't keeping tabs on it far should far outweigh the slight ding from closing the account.
posted by sageleaf at 9:02 AM on March 4, 2010
Stop buying into the hype. Make responsible financial decisions and move on. If/when you encounter resistance from a financial institution based on a score make it clear you do have the choice to take your business elsewhere.
BofA is a fine example. I think there's a couple hundred people I know that have taken their business elsewhere because of BofA's despicable practices. They're even so greedy as to try and steal someone's home through foreclosure. Ignoring the fact the people didn't even HAVE a mortgage on the home, let alone through BofA.
This "industry" thrives on conning you into playing their game. Stop.
posted by wkearney99 at 10:43 AM on March 4, 2010 [1 favorite]
BofA is a fine example. I think there's a couple hundred people I know that have taken their business elsewhere because of BofA's despicable practices. They're even so greedy as to try and steal someone's home through foreclosure. Ignoring the fact the people didn't even HAVE a mortgage on the home, let alone through BofA.
This "industry" thrives on conning you into playing their game. Stop.
posted by wkearney99 at 10:43 AM on March 4, 2010 [1 favorite]
BUT in reality, this really shouldn't effect your score that much even if it's your oldest card. That is all a bunch of myths. There was even a good article I just read recently about all of this.
If you read that article you linked and the comments there seems to be a LOT of contradictory evidence pointing to that article being essentially wrong. Just sayin.
I've got three cards with zero balance on them that are now asking for an annual fee unless they get used, and we have a meeting with our money guy next week to discuss plans. If he says close them I am going to be very happy to!
posted by Big_B at 11:03 AM on March 4, 2010
If you read that article you linked and the comments there seems to be a LOT of contradictory evidence pointing to that article being essentially wrong. Just sayin.
I've got three cards with zero balance on them that are now asking for an annual fee unless they get used, and we have a meeting with our money guy next week to discuss plans. If he says close them I am going to be very happy to!
posted by Big_B at 11:03 AM on March 4, 2010
If I was going to believe something would I believe the article written or a bunch of youtube commenters Big_B?
I read the article and did not read the comments. (nor will I be)
I still think the only way it would have messed up the credit score is if that old card made up a large % of the available credit. I've closed really old accounts before with low limits and it didn't seem to change anything on loans and other personal things I had going on.
It's not like when you close an account all the history of that account disappears from FICO (supposedly) so the history is still represented, it just doesn't continue...
At the end of the day though none of us really know. (Or at least, I can say that I do not)
posted by zephyr_words at 1:34 PM on March 4, 2010
I read the article and did not read the comments. (nor will I be)
I still think the only way it would have messed up the credit score is if that old card made up a large % of the available credit. I've closed really old accounts before with low limits and it didn't seem to change anything on loans and other personal things I had going on.
It's not like when you close an account all the history of that account disappears from FICO (supposedly) so the history is still represented, it just doesn't continue...
At the end of the day though none of us really know. (Or at least, I can say that I do not)
posted by zephyr_words at 1:34 PM on March 4, 2010
Response by poster: Wow, this has turned into quite the discussion. Thanks for the great input, guys!
posted by baronessa at 11:22 PM on March 4, 2010
posted by baronessa at 11:22 PM on March 4, 2010
If I was going to believe something would I believe the article written or a bunch of youtube commenters Big_B?
Well of course not, but moneyblogs.money.cnn probably has a somewhat different following than youtube. Or are you generally railing at Random Internet Strangers giving advice? Because that's pretty much what Ask Metafilter is all about.
posted by Big_B at 10:22 AM on March 11, 2010
Well of course not, but moneyblogs.money.cnn probably has a somewhat different following than youtube. Or are you generally railing at Random Internet Strangers giving advice? Because that's pretty much what Ask Metafilter is all about.
posted by Big_B at 10:22 AM on March 11, 2010
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BUT in reality, this really shouldn't effect your score that much even if it's your oldest card. That is all a bunch of myths. There was even a good article I just read recently about all of this.
I don't know what credit karma is but I wouldn't believe them on this one.
You've read — perhaps from well-meaning people on FICO's own message boards — that you should never close your oldest credit card because your length-of-credit-history measurement will immediately plummet? Again, that's a myth, says Watts. (Dropping it might affect your credit score a decade from now, he grants, but the impact will be small potatoes compared to that of your credit-related behavior in the interim.)
Anyway, unless you are planning on getting a loan right now or readjusting something worry about something else. Your score is very high and this is all very insignificant.
posted by zephyr_words at 11:34 PM on March 3, 2010 [2 favorites]