Closed accounts & FICO sco

Discussion in 'Credit Talk' started by Angela, Feb 9, 2001.

  1. Angela

    Angela Guest

    Do closed accounts that were paid on time affect the FICO score? I have 4 paid on time closed accounts on my credit reports. Would my credit score be higher with 10 paid on time closed accounts?

    The proper mix of credit discussion by saar and erik made me think up this question.
  2. ble103

    ble103 Guest

    RE: Closed accounts & FICO

    Yes it can really affect your score.Why?When you have opened tradelines on your credit file,when calcalating a score it take one thing into consideration "accounts age"the older the better as far with credit card accounts.If you have account that are over 5 years old,and you closed these accounts,it will affect your score in ways you wouldn't think of.Now let's say you have a few accounts that are less then 2 years old,this could have a big impact on your scores because you have not had these accounts for over 2 years.If you would try to apply for a card,you are likly to get declined due to "insufficent credit history" even tough you have proven credit from the accounts you have closed.Credit scoring looks at your current snapshot "opened accounts" along with your "payment history",and "track record".Also the "age" of account when calcalating your score.The longer the better,also you should keep atleast 2 to 3 tradelines active at all times.You need not to carry balances to do this kind of task,just charge what you can afford,and spread it out on your accounts,and pay it off every month.Don't skip any months at all when doing this because if you do,you lose your time on your payment trak record,and you got to start all over again.Lets say you went 4 years straight,and you all of a sudden quit using your cards,then 6 months later you started using your cards again,you would think well i got 4 1/2 years of payment record "wrong" when you let a card go inactive you start over,even if you have only have taken a months break.It isn't fair isn't it?But that's credit scoring for you.So don't close anymore long relationship accounts,and charge every month,and pay it off, then you will have nothing to worry about as far with your credit rating.
  3. Saar

    Saar Banned

    RE: Closed accounts & FICO

    A very interesting post! But only Experian shows your past payment pattern. The others only show account status (R1) and past delinqencies.

  4. dave

    dave Well-Known Member

    RE: Closed accounts & FICO

    I'm really not sure about any of this. It seems that having a longer history would improve your score if you make payments on time but why it is important to maintain that history with the same creditors is what I find confusing. Everything else being equal, why would a person who has maintained a single trade line with Capital One for five years have a better score than a person who closed that account during year three and immediately established a new account with Citibank that has been maintained for the last two? I'm not saying credit scoring is rational. Maybe it isn't. But I don't see any difference in risk between these two scenarios. I have never read anything about credit scoring that says maintaining a particular account over a long period of time is different from maintaining an account somewhere over the same period.
  5. Saar

    Saar Banned

    RE: Closed accounts & FICO

    Actually there is some logic there. In the prime world, rate shoppers who close accounts 6 months after establishing them, represent less profitable (read less desirable) customers. In fact, if you have a card w/ no annual fee and usually pay all or most of your balance, the creditor would actually lose money if you close your account prematurely.

  6. Jim

    Jim Well-Known Member

    RE: Closed accounts & FICO

    Yes, in my opinion it is better to have 10 closed paid on-time accounts rather than 4. As long as you used the accounts for a significant amount of time (maybe 2 years or more) in the case of revolving accounts. The closed installment accounts need to have been paid in accordance with the terms of the loan.

    The reason I say this is the result of something the finance manager told me when I got my auto loan at 2.9% a couple of weeks after my Chap 7 BK was discharged. He pulled my credit reports and looked at the dismal scores and said "you have a lot of paid up credit and this helps your to get the loan along with your large down and all of your documents that explain why you BK'd".

    In terms of the FICO score, I don't have a clue. That algorithm is unclear to most people including myself.
  7. Erik

    Erik Well-Known Member

    RE: Closed accounts & FICO

    From what I have heard it is the longer the accounts have been open the better as far as FICO goes. I don't plan on closing my sub prime cards until I have at least two other open cards with a two year or more history.

    I haven't heard very much about the effects of closed accounts. My theory is that there is no difference between 4 and 10 closed accounts as far as the formula goes. I do think a closed installment loan or a closed department store card might benefit your "mix" of credit if you don't have any open accounts of those types...

Share This Page