How Rachel Dropped her Credit Score by 87 Points

Real Estate Agent with Prudential Caruthurs

Did you know that closing a high limit credit card can actually hurt your credit score?  This was a very interesting story I picked up at an obscure internet site and something that most consumers should consider when facing applying for a mortgage.

The article involved a story about "Rachel" making a decision to close one of her credit cards.  I have done this before myself.  If you want to "thin out" the credit in your wallet, choose a card you have had less time, with the least amount of activity on it.  Here is what happened:

Rachel decided to close her eight-year-old VISA credit card with a credit line of $18,000. She didn't use the card but once or twice a month and had two other major bank cards that provided rewards points. In order to keep things simple, she decided to cancel the card with the highest credit line. The next month she found out that this one decision cost her 87 points on her credit score, dropping it from 752 to 665.  That could mean the difference of whole percentage points in interest on a mortgage!

If you know how credit is scored and what to "tweak", you can build up a good credit score in a shorter amount of time.

A consumer credit score is made up of five key components:

•1.    Payment History:

35% Types of accounts (credit card, mortgage, etc.), accounts paid as agreed, number of past due accounts, etc.

•2.    Amounts Owed:

 30% Balances of current loans, debt-to-credit ratio, proportion of installments still owed, etc.

•3.    Length of Credit History:

15% Time since accounts opened, last activity, etc.
New Credit - 10% Recent inquiries, new accounts, etc.
Types of Credit Used - 10% Mortgages, credit, retail, etc.

Keep the major credit cards that you've paid on time every month for longest period of time.  History is everything.

Keep the credit card that represents the best contribution to the payment history, debit to credit ration and length of credit history categories.

Ditch the credit cards that are only months old and had only been used intermittently.  This gives them much less value on your credit score.

You will not be penalized for having too much available credit. It is better to preserve your credit score with 15 years of established credit history and old accounts in good standing than to have fewer and newer open accounts.

Major bank cards give you more score than department store cards.

Now that you have been armed with this knowledge, here is this week's interest rates, compliments of PCR Mortgage Services:

Conforming 30-year Fixed (up to $417,000) at fully amortized - PITI:

5.625% at 0 points, 5.375% at 1 point


Super Conforming 30-year Fixed ($417K to county limit), fully amortized - PITI:

5.750% at 0 points, 5.500% at 1 point


Jumbo Mortgage (Over $625,501) (we can offer 30 yr. fixed)  5/1 ARM:

$4.500% at 1 point, 4.250% at 2 points


FHA - 30 yr Fixed . . . Regular & High Balance:

Reg FHA up to $417K or county limit - 5.750% at 0 points, 5.375% at 1 point

FHA 203 K Loans Streamline Reno. Loan - 7.000% at 1pnt, 6.000% at 2 pnts

High Bal. FHA $417K to county Limit - 5.875% at 0 pnts, 5.500% at 1 pnt.


VA Loans . . . 100% up to County Limit!

Regular VA (under $417K Incl. funding fee) - 5.750% at 0 pnts, 5.375% at 1.25 pnts

High Bal. VA ($417,001 - county limit) - 5.875% at 0 pnts, 5.500% at 1 pnts

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Comments (3)

Diego A. Perez
Connecticut Lawn Painting - Wilton, CT

Good post Bonnie, it's amazing how much difference a simple decision like canceling a card can make.

Jun 12, 2009 08:24 PM
Bonnie Cox
Prudential Caruthurs - Bel Air, MD

Hi Diego,

I don't always think about these issues either, and thought it would help people to share this.  Lawn painting huh?  Can you tell me what that is?  Is it what I think it is.

Jun 13, 2009 07:05 AM
Laura Warden Nordin
Century 21 Camco Realty - Albuquerque, NM
30-year Top Producer in Greater ABQ Real Estate

Informative post, Bonnie. Just goes to show how ridiculous the "credit score" process can be sometimes!


Jun 20, 2009 07:23 AM