Cancelling CCs and Effect on Credit History

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BRL
 
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Cancelling CCs and Effect on Credit History

Postby BRL » Fri Mar 14, 2014 10:14 am

I want to cancel a particular credit card but I know that one component of your credit score is the length of your credit history. The first credit card I ever got was an Amex Green, since then I have applied for and received probably another 10 credit cards about half of which have been cancelled already. I worried that if i cancel my Amex Green my avg length of credit will go down. I have excellent credit and want to maintain that. I have a Amex Biz gold rewards. If i cancel the green would the biz gold carry that history? If i got a no annual fee personal Amex would it carry the length of history?

Basically i don't want to pay the annual fee anymore but i don't want to lose that avg length of history.

Thanks


haikuginger
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Postby haikuginger » Fri Mar 14, 2014 11:34 am

First off, let's address the question in general. If you cancel a card, it will affect your utilization ratio in that a certain amount credit is no longer available. However, it will not immediately affect your AAoA; it will remain on your credit report as a closed account for seven years. After that point, it will drop off and may affect your AAoA, but at that point, you've had seven more years to build history, and the impact should be relatively minimal.

Now, in the specificity. American Express backdates all of your cards with them on your credit report to the year in which you were first a cardholder. Any AmEx cards you hold now or in the future will show their starting year as the year in which you got that Green card. This includes no-annual-fee cards, like the BCE. So, if the Green no longer serves your purpose, you can cancel it and get a BCE- it should backdate to that year automatically. So, in the short term, you'll actually have a longer AAoA, since your new BCE will appear to be as old as the now-closed Green card. That bump, however, will still go away once the Green card drops off your report, but you'll still be at least as well-off, credit-wise, as if you had just kept the Green card all that time.

MemberSince99
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Postby MemberSince99 » Fri Mar 14, 2014 12:34 pm

It's 10 years it falls off after assuming it's not a negative - negatives fall off after 7 years.

linuxmachine
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Postby linuxmachine » Fri Mar 14, 2014 12:35 pm

haikuginger wrote:First off, let's address the question in general. If you cancel a card, it will affect your utilization ratio in that a certain amount credit is no longer available. However, it will not immediately affect your AAoA; it will remain on your credit report as a closed account for seven years. After that point, it will drop off and may affect your AAoA, but at that point, you've had seven more years to build history, and the impact should be relatively minimal.

Now, in the specificity. American Express backdates all of your cards with them on your credit report to the year in which you were first a cardholder. Any AmEx cards you hold now or in the future will show their starting year as the year in which you got that Green card. This includes no-annual-fee cards, like the BCE. So, if the Green no longer serves your purpose, you can cancel it and get a BCE- it should backdate to that year automatically. So, in the short term, you'll actually have a longer AAoA, since your new BCE will appear to be as old as the now-closed Green card. That bump, however, will still go away once the Green card drops off your report, but you'll still be at least as well-off, credit-wise, as if you had just kept the Green card all that time.


A couple things.

1. The closed account stays on record for 10, so I typically say that if your card is less than 10 years old, you won't be any worse off than today when the card is dropped off the report assuming everything else stays the same. If there is any big drop, it's not likely because this account was dropped from the report.

2. There's a couple different lines of thought when it comes to charge cards. Some people believe Amex does affect utilization ratio, and that Amex will report your highest balance over the last 18 months as your unofficial CL to determine utilization. Other's believe Amex charge cards do not affect utilization at all, and as long as you pay on time, it should not affect your score, at least in a bad way.

For #2, which model should you trust? This is where it typically gets a bit more confusing. FICO has different scoring models (e.g. 98, 04, 08). Charge card utilization is not a factor in the newest scoring model, the FICO 8. However, in the older versions, the highest balance does get reported as the scoring model. I think the 3 bureaus keep track of all the scores, and lenders determine which score to look at. However, that is the extent of my knowledge...

Anyways, I know this is sorta beyond what the OP wanted, but I figure I'd share the little tidbit about how charge cards affect FICO

BRL
 
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Postby BRL » Fri Mar 14, 2014 12:50 pm

Thanks for the reply.

haikuginger
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Postby haikuginger » Fri Mar 14, 2014 4:12 pm

MemberSince99 wrote:It's 10 years it falls off after assuming it's not a negative - negatives fall off after 7 years.


Ah, that's my bad. I thought it might be, but couldn't remember exactly.



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