If you have been thinking lately about getting rid of those pesky credit cards that only tempt you into debt, you may have also wondered, “If I cut up these cards, will my credit score go down?”
My wife and I made the decision to cut up our credit cards in February of 2010. We were digging ourselves out of debt (and still are) and we decided that we no longer needed our credit card. In the event of an emergency, we had our emergency fund to pull from; and for all other expenses that might need a card, we had our handy-dandy debit cards!
I really didn’t think about the effect that this would have on my credit score at the time, but I have had a few readers pose the question.
As I researched the question, the simple answer to the question is, “Yes, if you cut up your credit cards, your score will go down.”
The graphic from MyFICO.com shows us why:
The areas that hurt us the most are the Amounts Owed and the Length of Credit History.
Amounts Owed: While it is true that we owe nothing on our credit cards (which is often a good thing, as long as it is in use), since we cancelled them, we no longer have a line of credit on the card, which means that we no longer have a debt to limit ratio. Without a ratio, FICO cannot grade us here, and our score will take a slight hit.
Length of Credit History: Obviously, if we close our account our history with the card will end, causing our score to be affected slightly.
Remaining Categories: By closing our accounts, our payment history (utility bills, phone bills, mortgage payments etc.) will continue; we won’t have any credit inquiries; and it won’t cause us to take on any more types of credit. So, these areas will not hurt our credit score.
And, of course, the next question is….
By How Much Will My Credit Score Go Down??
Of course every case is different, but for the great majority, your score will not decrease very much at all. Over the course of a year, it may go down 10 points. So, don’t worry too much about it. If your credit cards are too much of a temptation, by all means, CUT THEM UP!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.