This seems like a contradiction but really it is not. Our years as a credit repair service have shown us that consumers are often confused by the idea that common sense should make FICO score “sense”. The truth is that common sense and the FICO score are far too often completely opposite. Many people think that in order to improve their credit score, they just have to pay off some debts and then close down their accounts to reflect “positive credit activity”. This is one of the most tragic misconceptions about credit.

Closing a positive credit line (referred to as a tradeline by lenders) is one of the quickest ways to almost immediately lose FICO score points. Why? Well for several reasons. First, the FICO score has multiple calculations that are affected negatively by the action of closing an account. 30% of your FICO score relates the idea that a consumer should ideally have 3-5 open tradelines at 35% or lower balances to limit ratios. If you close an account, you can essentially lose all the positive payment history that was being reflected on that account because the account no longer looks good on a credit report. All the months and years of positive payments are no longer active on the account. Therefore a substantial decrease in FICO score occurs.

Another reason why your score will be negatively impacted by closing an account is that the FICO score calculates 15% of it’s weight on the idea of account SEASONING or “length of credit history”. So when we see an account that has substantial credit seasoning (a year or more) get closed by mistake, we cringe. It doesn’t seem fair that a consumer should lose credit points for paying off a debt and closing the account. But once again, “common sense” and “Credit Sense” rarely align.

So what’s the best way to avoid a decrease in FICO score points? Pay off an account and LEAVE IT OPEN! Would Susie Orman agree? Probably not. Most financial “gurus” will caution you to avoid credit temptation and avoid paying fees on credit cards you’re not using (which would make common sense) but in order to keep your credit integrity intact, you will need to think outside of common sense and more in line with what will bring your FICO scores up.

Doesn’t it almost feel like the credit card companies have a little more to do with the factors of a FICO score than we think? Hmmm… perhaps that should be another blog topic all of it’s own.

For more questions relating to credit ratios, closing or opening accounts, please contact our office directly.