Question On Closing Accounts, Churn & Credit Scores

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Wildcat_1
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Question On Closing Accounts, Churn & Credit Scores

Postby Wildcat_1 » Tue Jul 30, 2013 11:16 pm

All

I was always under the impression that once credit lines were established etc that you really didn't want to do too much closing as ultimately would/could impact credit score. However as I look to new cards (finally going the rewards and points route) I have read a lot on multiple applications, multiple cards and also about churning when it comes to maximizing points. This (churning) of course is what made me think of the closing account credit score hurt thing.

Can anyone help me understand the churning piece, how it relates to closing accounts and really what the true impact of closing accounts is on your score.

Thanks for the info

WC


MemberSince99
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Postby MemberSince99 » Wed Jul 31, 2013 6:31 am

I don't churn for the purpose of sign up bonuses (I've left more in the account when I closed it than I took), I churn when I find cards I simply like better than I have now. So, I can't say I do it for that reason but I guess you could say I've churned accounts.

It really hasn't impacted my score to be honest all that much. But everyone has a different situation.

If you really don't plan to ever use an account I just personally can't see leaving it lay around simply due to it potentially being a liability to me if someone steals the account info. Others will disagree with that, but then some people keep old LIFE magazines from the 1950s too in musty boxes in the attic in case they want to read them again someday.

So if it's your oldest account 5 or 10 years old, is your score going to take a hit? Probably. But if you really have some other good cards and don't plan to use it, and have a good score already, it might not be huge. It's just hard to speculate and try to give specifics on unknowns.

takeshi
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Postby takeshi » Wed Jul 31, 2013 9:16 am

Wildcat_1 wrote:I was always under the impression that once credit lines were established etc that you really didn't want to do too much closing as ultimately would/could impact credit score.

The thing is that "too much" varies from person to person. All things else being equal, a thicker credit file is less likely to be impacted than a thinner credit file. In the last year I've closed 4 card accounts and opened 5. A oversimplified understanding of causality would probably lead one to think that my scores have tanked as a result but they're better than they have ever been (FAKO's anyway -- haven't been watching FICO).

It's really not quite so straightforward so it's difficult to give generalizations that will hold true in all situations. Another person could have done what I did have have scores tank. It's not just opening and closing accounts that impact credit. One always has to consider every factor at play. In my case, utilization has drastically dropped. The balances that I have now would have been 80% utilization for my credit limits at the beginning of the year. Now they're only ~10%. AAoA wasn't hit too hard since 2 of the new cards are AmEx cards backdated to 1998.

Wildcat_1 wrote:and really what the true impact of closing accounts is on your score.

You can easily calculate the impact on utilization of closing an account. As for AAoA, closed accounts will remain on your file for 10 years. We really can't say that "closing X means you'll lose ZZZ points". The exact impact is going to differ as credit differs from person to person.

Wildcat_1
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Postby Wildcat_1 » Wed Jul 31, 2013 11:29 am

Thank you Takeshi and 99. Please excuse my ignorance but AAoA ?

MemberSince99
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Postby MemberSince99 » Wed Jul 31, 2013 12:25 pm

AAoA = Average Age of Account. In other words what is the average age of the accounts (cards) you have. Simple example simple math - 5 accounts with 5 years each of age = 25 total years / 5 accounts = 5. You could have done the math easily in your head, but the formula is simply Total years of age of accounts / number of accounts.

Wildcat_1
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Postby Wildcat_1 » Thu Aug 08, 2013 5:51 pm

A quick follow up on this regarding AAoA. When opening a new credit card does that get calculated at 0 or 1. In other words does minute 1 class as a year or not.

For example if you had 3 accounts for 5,4,2 years respectively then AAoA would be = 3.6 years rounded down to 3 (in my understanding).
If you then opened a new credit card would it be 4 accounts and 5,4,2,1 or 5,4,2,0 ? With rounding down applied could make difference of 3 year AAoA to 2 year AAoA so wanted to check the logic

Thanks

WC

Wildcat_1
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Postby Wildcat_1 » Thu Aug 08, 2013 6:10 pm

Cancel that last question, defied my own logic :) My assumption would be that they would add to the account number but of course be set to 0 for time



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