August 27, 2010
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FICO Score; What's It All About?, Pt.2
Debt is debt.We've already learned that closing a credit card will only hurt your credit score because it will reduce your available credit and increase your utilization score which lowers your credit score. The length of time a credit card account is open is also taken into consideration in the FICO scoring model. However, there's a difference. The age of an account is considered whether the account is open or closed. Therefore, although closing a credit card account could hurt you in regard to the utilization score; it would not hurt you in regard to the age of the account. It is not necessary to concern yourself about the age of the account when considering whether or not to close an account.
Advice to spread debt across several credit cards is not wise. Debt is debt and whether you carry it on one card while keeping your other cards at a zero balance, or you have the same amount of debt spread on two or more credit cards; your utilization will remain the same. What will affect your score is that you have more than one card with a balance of greater than zero. Anyway you look at it, the best advice is to use one card for all your needs and store the others away maintaining a zero balance. Not only will this help your FICO score, but it will help you better manage your debt.
Although there are a few less used credit scoring models that take income into consideration, the FICO scoring model does not. Lenders use income when considering approval on credit card applications to ensure that the cardholder has the ability to repay the debt. However, income is not included in the most commonly used FICO credit score. Don't be fooled by this; it is never wise to falsify your income. Not only will this cause you to lose the account, but it is illegal as well.