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Closing 23 credit card accounts, will credit score increase or decrease?


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I'm in the process of giving a friend advice on her credit cards. Recently, her mom took out a 35k debt consolidation loan to pay off her credit cards, with the requirement that she close all her credit cards except the oldest card. Currently, my friend has 90% utilization. I told her even though she is closing the credit cards, her credit score should increase because the utilization would decrease to less than 3%, plus she still has a installment and auto loan on her credit report. Is my assumptions correct?

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In isolation....

 

- she'll make points by moving debt to an installment loan if her revolving util goes down to 3% on a single card. Especially if she had a maxed out card, that is worth 20+ points

- she'll lose points for having fewer active accounts. And she may lose points if keeping credit open would give her an overall util of <1%

 

So, it will probably help scores on the balance because the second point may not hurt much in the grand scheme of things, while the first point definitely helps. But realize that any derogs may drown out any benefit, which would make this moot. If she has recent lates, or has recent collections, lowering util may not help at all in the short term, or at least not help enough to put her scores in a different tier. For those, you either have to get them deleted or just plain wait for the effect to fade over years.

 

I don't understand how your friend's mom fits into this. The bank giving your friend's mom the loan can't force your friend to close her own cards. Is your friend asking her mom to take out loan and give her the $35k? That is a bad idea if so.

Edited by spreereview
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With that much debt, either cc or loan, maybe it's better to focus on paying accounts off instead of raising the credit score? Time to heal.

 

Spreereview, is it always true that closing accounts lowers the score, across scoring models? I was thinking that the closed accounts will still report for years... 7.5 if neg, 10 if positive?

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She has no late payments, Discover shows her FICO score at 714. She wasn't able to get a unsecured debt consolidation loan in her name. The loan is in her mother's name only, through Discover Personal Loan at 10.99%, closing the credit card accounts was the only way her mother was going to do loan. The mom doesn't want her to accumulate this kind of credit card debt again. The mother received the loan through Discover Personal Loans at 10.99%. My friend will only have a auto loan ( 2 years left) and a installment loan (18 months left) on her credit report. She will have a extra $400 a month with no more credit card payments and will be making the loan payments on her mom's loan. She plans on starting a retirement account and making extra payments to her mom's loan to pay it off early. Thanks for the info.

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Friend should leave three cards open

I hate to be a naysayer, but my guess is the friend will open several new ones anyway.

Good intentions I am sure, but without the pain of fixing it herself, statistically the chances are high that she will be back where she started.

The installment loan with 18 month left, is that a previous debt consolidation loan?

 

I really am not trying to dog on the OP's friend, but this is a pretty risky course of action.

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The act of closing a cc account doesn't cause a dip/bump in FICO. The act itself. There are other factors involved that might cause movement in your FICO score, yes. Movement can be upward or downward depending on these factors. Overall utilization would be the most prominent factor influencing your FICO score after you close a cc account. Long term, AAOA would be a factor that might influence your FICO score.

Edited by ubercat
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Long term, AAOA would be a factor that might influence your FICO score.

 

If they close all accounts except for the oldest one, wouldn't the AAOA actually go up? Or do the closed accounts still factor in to AAOA?

Edited by jc481
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Long term, AAOA would be a factor that might influence your FICO score.

 

If they close all accounts except for the oldest one, wouldn't the AAOA actually go up? Or do the closed accounts still factor in to AAOA?

 

 

They continue to factor into AAOA until the reporting time has lapsed.

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a part of me just died.

 

23 is excessive...

 

 

Something tells me that it isn't the 23 cards that instigated the hegeicide...

 

 

The previous installment loan is a debt consolidation. She's trying to do all the right things to not let this happen again. I helped her with a budget that she promises to follow.

 

 

 

ETA: I'm a tough-love person, myself. You get one chance. IMO, your friend has had their chance. Time to own up to their own mistakes, and stop letting others cover their butt.

Edited by clc222
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The previous installment loan is a debt consolidation. She's trying to do all the right things to not let this happen again. I helped her with a budget that she promises to follow.

 

So the previous installment loan was for a CC debt consolidation in the past?

 

And another now? Credit is money to this person. Until they comprehend it isn't, the cycle will continue.

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Once her credit rebounds from 0% util she maybe able to get a personal loan in her whole name and get mom out of it, plus higher dti might make harder to do it again until its all paid

or she'll be able to open a bunch of new cards and run up some more free money.

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  • 4 weeks later...

I want to thank everyone for their input. Update: my friend didn't close all 23 accounts, she still has about 6 left open. Her Fico score from Discover went up to 760. Now she has two Visa cards left, both of them are the oldest from 2003. She wants to close out the one from Capital One because they are charging her $5 month fee. If she does close out Capital One, does anyone know what affect it would have on her credit score?

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I want to thank everyone for their input. Update: my friend didn't close all 23 accounts, she still has about 6 left open. Her Fico score from Discover went up to 760. Now she has two Visa cards left, both of them are the oldest from 2003. She wants to close out the one from Capital One because they are charging her $5 month fee. If she does close out Capital One, does anyone know what affect it would have on her credit score?

No way she should close a 13 year old CapOne. She should call and get the AF waived or product change to a no-AF card.

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Ditto to Konrad's advice. Given the current credit score, with a quick phone call Cap One should hopefully remove the fee from the card. j

 

There's a caveat here: Cap One may only remove the fee with a product change. I'm not sure if history would follow with the new card. Anyone here know?

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Cap One may only remove the fee with a product change. I'm not sure if history would follow with the new card. Anyone here know?

 

I PC'd my Platty to a QS, and it kept the history.

 

The card is now closed (combined with my other QS), but IIRC -- it was the same account #, just a different product line.

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