Q&A: Be strategic when closing credit accounts

Dear Liz: I recently moved to a new state and would like to open a credit card at my new credit union. I’m concerned that closing my old credit union account and card will hurt my credit scores, which are over 800. The old card, which I no longer use, has a high credit limit. My income is also lower, so I’m not sure how that will affect the credit limit I get.

Answer: Closing credit accounts can ding your credit scores, but that doesn’t mean you should never close an unwanted account. You just need to do so strategically.

First, understand that the more credit accounts you have, the less impact opening or closing an account typically has on your scores. If you have a dozen credit cards, for example, closing one will likely have less impact than if you only have two.

Still, you’d be wise to open the new account before closing the old one. That’s because closing an account lowers the amount of available credit you have, and that has a large impact on your scores.

If the new issuer doesn’t give you a credit limit close to that of the old card, you’re still probably fine closing the old account if you have a bunch of other cards. If you don’t, though, you may want to hold on to the old account to protect your scores.

Q&A: This is why credit scores are so confusing

Dear Liz: I am from Germany. I have had a bank account in America for over one year. Now I get my FICO score. After six months it was 738, half a year later, it was 771 and one month after that, 759. Why does it change in such a short time? Is it the real FICO score?

Answer: Welcome to the U.S. and its sometimes-baffling credit scoring systems. Even people who were born here often misunderstand how credit scores work.

You don’t have just one score; you have many, and they change all the time to reflect the changing information in your credit reports. Higher or lower balances on a credit card, a new credit application or the simple passage of time can make the numbers change.

The FICO scoring system is the most dominant, but lenders also use VantageScore, a FICO rival created by the three credit bureaus (Equifax, Experian and TransUnion), plus proprietary scores.

You also will see different numbers depending on which credit bureau report is used to create the score and which version of the score is used. Credit scoring formulas may be designed for certain industries and formulas are updated over time.

So your FICO Auto Score 6 from Experian likely won’t be the same as your FICO 4 from TransUnion, your FICO Bankcard Score 4 from Equifax or your VantageScore 3 from any of the bureaus, even if you get all the scores on the same day.

It can be hard to predict which score a lender will use, but the same behaviors tend to be rewarded by all of them. Those behaviors include paying bills on time, using only a small portion of your available credit, having different types of credit (installment loans and revolving accounts, such as credit cards) and applying for new credit sparingly.

If you’re using a score to monitor your credit, it’s important to use the same kind from the same bureau — otherwise you’re comparing apples and oranges, as we say in English.

Tuesday’s need-to-know money news

Today’s top story: What to do when back-to-school bites you in the budget. Also in the news: Advice and warnings for starting your own cannabis business, why Millennials need to build credit smarts and find out of your state is having a back-to-school tax-free weekend.

What to Do When Back to School Bites You in the Budget
You’ll need to prioritize.

Advice and warnings for starting your own cannabis business
The new Green economy.

Millennial Money: Credit score up? Build credit smarts, too
Protect your score.

Find Out If Your State Is Having a Back-to-School Tax-Free Weekend in 2019
Did your state make the list?

Monday’s need-to-know money news

Today’s top story: The average credit score is rising. Also in the news: 3 money-saving tips for buying a washer, a statute of limitations on student loans, and why you should always buy airfare on a credit card.

Credit Scores Are Rising — Is Yours, Too?
Every little bit matters.

Want to Clean Up? 3 Money-Saving Tips for Buying a Washer
Don’t get hung out to dry.

Is There a Statute of Limitations on Student Loans?
The answer is complicated.

Always Buy Airfare on a Credit Card
Additional protection.

Is better credit worth exposing your bank data?

America’s credit bureaus haven’t exactly covered themselves in glory when it comes to protecting your private data. So you might well be skeptical about two new credit-enhancing products that require not just credit information but also access to your bank accounts.

In my latest for the Associated Press, why the boost in your score might not be worth the exposure of your banking data.

Monday’s need-to-know money news

Today’s top story: Make a home down payment without wrecking your finances. Also in the news: What could happen to your credit score when you close accounts, how to sidestep the potential pitfalls of travel credit cards, and why most teens don’t believe they’ll be financially independent from their parents by age 30.

Make a Home Down Payment Without Wrecking Your Finances
Don’t leave yourself empty-handed.

Ditching Credit Cards? Here’s What Could Happen to Your Score
Closing your accounts could lower your score.

How to Sidestep the Potential Pitfalls of Travel Credit Cards
Dodging blackout dates.

Teens don’t believe they’ll be financially independent from parents by 30: Survey
Bad news for parents.

Tuesday’s need-to-know money news

Today’s top story: In the points and miles game, blind loyalty can cost you. Also in the news: The best mortgage lenders with no origination fee, how a personal loan affects your credit score, and how thinking like an optimist could help you save more.

In the Points and Miles Game, Blind Loyalty Can Cost You
You could end up losing the points game.

Best Mortgage Lenders with No Origination Fee of 2019
They’re not easy to find.

How Does a Personal Loan Affect Your Credit Score?
A chance to improve your score.

To Save More, Think Like an Optimist
The saving power of positive thinking.

Tuesday’s need-to-know money news


Today’s top story: The one form that could be the root of all your tax woes. Also in the news: Income-driven student loan repayments, 4 credit score horror stories that could happen to anyone, and understanding the difference between a hobby and a side hustle.

This One Form Could Be the Root of All Your Tax Woes
The innocent looking W-4.

Income-Driven Repayment: Is It Right for You?
What to do when you can’t afford your student loan payments.

4 credit score horror stories that could happen to anyone
Tiny mistakes that could trash your credit.

Before You Do Your Taxes, Understand the Difference Between a Hobby and a Side Hustle
When your hobby becomes a job.





Tuesday’s need-to-know money news

Today’s top story: 5 things you don’t have to pay a tax preparer to do. Also in the news: AmEx Gold’s inconsistent dining rewards are frustrating foodies, what you need to know about surging savings account rates, and what you need to know about “free” credit scores.

5 Things You Don’t Have to Pay a Tax Preparer to Do
Knock these things off your tax list.

AmEx Gold’s Inconsistent Dining Rewards Are Frustrating Foodies
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Savings Account Rates Are Surging: Here’s What to Know
Online banks are offering the best rates.

What You Need to Know About ‘Free’ Credit Scores
Free doesn’t always mean without cost.

There’s always a next recession, so be prepared

Recessions are like natural disasters: They’re inevitable, but smart preparation may reduce the impact on you.

The U.S. economy has grown steadily since emerging from the “Great Recession” in June 2009, but expansions can’t continue forever, and this one is already the second-longest on record. Only the expansion from March 1991 to March 2001 lasted longer.

Recessions occur when growth stops and the economy starts to shrink. They vary in severity and length, but often jobs disappear, incomes decline and lenders make it harder to qualify for credit.

Knowing what may be coming can help you fortify your finances to withstand a possible slowdown. In my latest for the Associated Press, some steps to consider.