Often people remain pleasantly surprised when check their credit score and find it increased. On the other hand, sometime people remain negatives surprised when discover that their Credit Score dropped 30 points in one day.
Which are the main reason? What may adversely affect your score?
This often happens when you pay off your loan, have a few lines of credit, and cancelled your credit cards. It’s happened also to me when I’ve closed my remaining credit card. Once paid my loans and deleted my last credit card I seen a dramatically negative impact to my credit scores.
What’s In Your FICO® Score
FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score.
Below I’ve put a graphic from my Fico’s “what’s in your FICO score?”
This graphics show that your FICO score depending from different categories. In particular:
Payment history or credit history was one of the main factor to determine credit score. First the 2009 at least 35% of your credit score were based your payment hystory.
The type of credit used have an impact on your FICO score. At least 10% of your score is based on the type of credit.
Your FICO score depends by the number of various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.) For instance, Installment debt, such as an auto loan, is seen more favorably than revolving (credit card) debt.
lenght of credit history – One of the main causes that can have a negative impact to your credit scores is the lenght of your active credit history.The lengh of credit history have an negative impact on your score of 15%. People with an high credit score(700-800) usually have at least three credit cards with seven years life and a low balances.
If you have 2-3 credit cards with 7 years life, once you deleted them you reset the lenght of your active loans back to zero. In my view, is better to keep the account open with a small amont of activity, and paying off your debit, rather them paying them off and closing the account definitely.
Of course, there are other factors that could be positive:
If on one hand you are punished because you have cancel your accounts, on the other hand your payment history could be no negative, and a clean payment history may help counteract the downside of canceling the accounts.
Once you closed your accounts, you also have put a block on either your reports and you have very few checks on your credit.
Conclusion
In my case, is possible that if I had not canceled my credit cards, maybe my score would be 800. Of course, I’m no no sure 100%, but canceling my credit cards may have caused my score to stagnate. Before my Credit Score dropped of 30 points, I throught to know enough about of credit scores. Today, I’m not so sure anymore!
