New answers pried from the secretive FICO corporation that overlords our credit scores kill a longstanding myth. It turns out that cancelling your credit cards won’t destroy your credit score.
The most important point made by spokesman Craig Watts is that it’s a myth that if you close a credit-card account, all trace of it disappears from your credit score. In fact, he says, the credit agencies from which FICO draws information used to calculate your score hold on to payment history for years — the positive stuff for about a decade and the negative stuff usually for seven years. That information is used to calculate two parts of your credit score.
One is payment history, which accounts for 35% of your score and which reflects, among other things, whether you made your payments on time and whether you welshed on any balance you may have owed when you chopped up your card. Another is length of credit history, accounting for 15% of your score, which reflects whether you’re a newcomer to paying people back or not. All that stays, Watts says, if your card goes.
You’ve read — perhaps from well-meaning people on FICO’s own message boards — that you should never close your oldest credit card because your length-of-credit-history measurement will immediately plummet? Again, that’s a myth, says Watts. (Dropping it might affect your credit score a decade from now, he grants, but the impact will be small potatoes compared to that of your credit-related behavior in the interim.)
This is news even to me. My fiancÃ© has a card with a zero balance that all of a sudden started getting a new monthly “service fee.” She didn’t want to cancel because of how it might affect her credit score, but now I’m going to encourage her to kill it.