Friday, October 28, 2005

Credit Report Repair - Closing Accounts Will that help?


A question I am repeatedly asked is :Will closing unused accounts help improve credit score?

Well I have Craig Watts, public affairs manager at Fair Isaac Corp. to answer it for you.

"A person's FICO credit score will never improve because she closes an account, unused or otherwise," he says. "In fact, closing an account can occasionally have the opposite effect on one's FICO score, depending on what else is on her credit report."

"The FICO credit score algorithm does not look at a person's available credit as an isolated factor when calculating one's score. So having a lot of unused credit will not by itself hurt one's FICO score. Fair Isaac's own research has demonstrated that the amount of available credit by itself is not nearly as predictive of future credit behavior as it's often cracked up to be. That's why we did not include it as an independent factor in the FICO scoring algorithm.

"Instead, the FICO algorithm looks at available credit in comparison to outstanding debt, from which it produces a 'credit utilization' percentage that is, in fact, used in the calculation of one's score. Maintaining low balances helps one's FICO score by keeping that credit-utilization percentage low, among other benefits."

Watts says what confuses some people in the mortgage industry is the fact that some lenders still take available credit into account as an isolated factor, separate from the applicant's FICO score. And in satisfying a lender's request to close unused accounts, he reiterates, an applicant may in fact be harming her FICO score.

Fico Answers


Johncy Edward
Your Trusted Credit Repair Guru

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