Closing unused credit cards lowers FICO: Correcting the Wall Street Journal

unused credit cards

The Wall Street Journal (Photo credit: Wikipedia)

Closing unused credit cards lowers FICO: Correcting the Wall Street Journal

I was once shocked to read in The Wall Street Journal’s column of July 10, 2011 a statement that was clearly wrong regarding unused credit cards.  I wrote an e-mail to columnist Tom Lauricella regarding his column entitled:

“Mortgage Rates are Great if You Qualify”

Dear Tom:  I believe an error crept into your otherwise excellent column reprinted in today’s Providence Journal.  The second to the last paragraph states that: “For example, closing an unused credit card can actually raise your score in the short term” he says.

What is the Real Effect of Closing Unused Credit Cards?

Closing unused credit cards lowers your score in the short term. This is because you no longer have that amount of credit available to you. Closing unused credit cards doesn’t reduce the average age of your credit. People tell you it does, but it doesn’t.  This is another common mistake that so-called experts repeat because they are copying each other instead of looking at the underlying legal and policy foundations. When closed unused credit cards show on credit reports they are carried according to the status at which they were closed.  Hopefully this is “Paid in full, closed by consumer.”  That status is carried for 10 years and counts in the important component of your score known as “Time in file.”

But “Less available credit”…

  Less available credit adversely affects your debt to credit ratio.  This is critical to your score.  For instance if you have the potential to borrow $10,000.00 but only have $1000.00 in debt outstanding you have a very fine low debt to credit ratio of 10%.  If the $10,000.00 in available credit was divided between 2 cards at $5,000.00 each closing one of them would leave you with a not so good 50% debt to available credit ratio.  You would be much better off to pay $2500.00 on each because your total credit usage on each individual card is a lesser component of this credit scoring area as well.

Lauricella, Tom to me:  “Yes we goofed.  Correction is running.  Thanks for taking the time to write.”

Takeaway:  Keep the unused credit cards open.  Buy a tank of gas or pizza with unused credit cards once in a while.  Most important of all:  Pay it on time!

kudos to the wall street journal for admitting to and correcting their mistake with lightning speed.
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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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