Thursday, February 25, 2010

Learn How Canceling Credit Cards Affects Your Credit Score [Credit]

via Lifehacker by Kevin Purdy on 2/25/10

Adam Baker, blogger at Man vs. Debt, canceled all his credit cards 15 months ago. His credit score dropped just 10 points, but he learned a lot about that score, and what financial reviewers are looking for, by taking the plunge.

Baker guest-blogs at the Get Rich Slowly blog about what living almost credit-free has done to his credit score. There have been great benefits, besides the obvious financial clarity, like a spotless payment history and no new-credit-lookup black marks. But he's honest about what living off the debt grid will likely do to his score, over time:

  • The length of our active accounts would obviously be affected. Several of our credit cards were 4-5 years old. Canceling them reset the length of our active revolving loans back to zero.
  • The type of credit used would be less diverse. We didn't have a mortgage and now didn't have any active revolving credit, either. I've read that FICO likes to see an installment loan that isn't a student loan (for example, an auto, jewelry, or personal loan). We're now lacking that, as well.
  • Our overall credit limits were all but eliminated. Previously, we had close to $15,000 in credit card limits. This was obviously reduced to $0 by closing the accounts.

It's a good read for anyone who's ever considered going credit-card-free, but still has a house purchase or other financial move to make that gets graded on a credit score.

Have you seen your own credit score drop because you stopped living with debt? Tell us how it affected you, and how you coped, in the comments.

Posted via email from Brian's posterous

1 comment:

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