Will my FICO score go down if I close a credit card account and open a new one?
Dondeep asked:
I recently turned 18 and I have 2 credit card accounts. I am a secondary account holder for both (which still does affect my credit score). I have made sure to make full payments every month for them. I want to maximize my credit score, so should I close an account and open up a new account where I am the only account holder? Would closing my credit card account affect my FICO score?
Yes. But if you are only an authorized user on those cards (does your name appear on the bill?) you cannot close them, only the account holder can close them. If you do cancel a card that was in your name, you lower your overall credit line and thus lower your FICO score. You also lose out on the number of years that you show as having credit, which also lowers your score. There’s no harm in just cutting up the cards without cancelling the account. If you’re worried that you won’t get a large enough credit line on a new card, you can request to lower the credit line on the old card, just don’t make it too low (less than $1,000) or you run the risk of being “technically” in default and getting hit with nasty fees if the balance is 80% of the credit line.
Your FICO score is based on several different factors. 35% is your payment history, 30% capacity (how much credit you have access to), 15% length of credit, 10% accumulation of debt in past 12-18 months (i.e. opening new cards), and 10% credit mix (installment better than revolving). Your credit report does not give more weight to accounts on which you are primary than they do ones on which you are a secondary authorized user.
If you close or remove yourself from an account, you now have a higher ratio of debt to available credit. Closing an unused card and opening a new card affects 65% of the information above that determines your score. Keep the unused account open if you have the discipline to not use it. Unless you need a new credit card, please don’t get one. If you need a mortgage or auto loan, this type of loan would actually do more to maximize your score because it’s an installment loan.
If you have a little extra cash, you can go to one of the three major credit bureaus and pull your score (I used Equifax recently for mine – about $8). On this report, it will give you reasons for why your score is not higher – like late payments, credit being too new, or not having a good mix of loan types. Kudos for taking charge of this at 18!