Maxed-out card blocks entry to 800 credit score 'club'

Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.

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Question for the expert

Dear Speaking of Credit,
My goal is to get to the 800 Club or die trying (ha-ha, I'm 66). My situation:

  1. I had a FICO score of 760-plus, then it went down.
  2. I applied for multiple cards to get their cash bonuses and 0 APR on a balance transfer.
  3. I have a balance on only one card -- it has a 0 percent APR, the credit line is $12,000 but I owe them $11,200. All other cards are paid off but open.
  4. I now use only my Wells Fargo card and have just set up the account to pay in full monthly.

My question: Should I close credit card accounts that I am SURE I will never use again and just use the one Wells Fargo card I pay in full each month? I have a mortgage history of 10 years. There are no late charges on any accounts I have per my free FICO I looked at. Finally the one card I have chosen to keep (Wells Fargo) has been opened the longest but I didn't use it while it was open and now I am using it and as stated paying in full each month. Thanks for your help in getting me to 800! -- Garry

Answer for the expert

Dear Garry,
Fortunately, most credit management strategies that lead to high scores, such as paying on time and keeping card balances low, are also the ones most likely to save you money. Yet, there are also a couple of situations -- such as maxing out a 0 percent APR card and closing cards you don't use -- where the best money-saving strategy isn't the most effective credit-score-raising move.

Your question brings a couple such examples to light. So let's talk about them, and about the "800 Club" -- the level attained by those who highest credit scores from FICO, which has a point scoring range of 300 to 850. You'll see that you can go after an 800 score, you can try to save money on interest and annual fees, or prevent identity theft -- but not necessarily all three.

Maxing out a 0 percent APR card
Your 760 score shows you have done most of the essentials for a good credit score. You have a history of on-time credit card and mortgage payments. But what you describe in your question also provides a prime example of what not to do to raise your score. You have a card with 93 percent credit utilization ($11,200 balance/$12,000 limit). Nearly maxing out that 0 percent card wasn't the right move.

One might think a credit score would reward you for being financially savvy enough to leverage the "free money" advantages of 0 percent APR. But credit scoring doesn't quite see things this way.

Your credit report doesn't include any rate you pay, so the scoring formulas can't give you bonus points for paying no interest. But research into credit risk has shown that higher utilization leads to a greater chance of future default -- regardless of the APR. And considering that utilization makes up almost 30 percent of your score, you could see a loss of up to 45 points from a nearly maxed-out 0 percent APR card.

Closing cards you don't use
Like the level of financial responsibility demonstrated by utilizing zero or low interest rates on your debt, closing out credit card accounts you no longer use or ever intend to use again simply seems like common sense. There's also money to be saved by closing cards that come with an annual fee. Add a good dose of ID theft prevention by closing cards that could fall into the wrong hands, and you have some sound reasons for closing cards. But then again, with credit scoring, it can seem like no good deed goes unpunished.

Despite the sensible steps of cutting out annual fees and securing your credit lines by shutting them down, closing cards can derail your path to the 800 Club, whether immediately or in the future, because:

  • Closing a card removes its available credit (credit limit) from balance/limit calculations, which can lead to higher combined utilization -- a risky trend in the eyes of the score.
  • A closed card can continue to contribute positive credit history long after closing, but not once it has been removed from your credit report, a fate befalling all closed cards -- not cards left open -- about 10 years after closing.

Smart moves if you may be applying for credit
So, when do you, if ever, choose the 800 Club over interest-expense cutting and tightened ID theft prevention? As a general rule, if you see any chance that you'll be applying for new or additional credit within the next six months, or are unsure, head for the 800 Club by taking the following steps:

  • First, since it's not doing your score any good, pay off as much of that highly utilized 0 percent APR card balance as you can, as soon as you can, and don't stop until all of your cards are being paid in full each month. Considering this debt could already be costing you nearly 45 points, eliminating it should clearly be task No. 1.
  • Second, if you have identity theft concerns, immediately close any potentially problematic cards. Otherwise, avoid closing cards, even those charging an annual fee. The money you spend on that annual fee could come back to you in the form of lower mortgage or auto loan rates, or generous card reward programs, thanks to your high score.

Smart moves if you won't be applying for credit soon
Or, should you decide that, though still important, your score is not going to be put to the test anytime soon, then:

  • Get cracking on paying down that 93 percent-utilized card before the promotional 0  percent APR period ends. Unless another such offer presents itself, you want to pay it off before the interest starts or that 0 percent you've been relying on will have cost you more than saved you.
  • Close any cards you don't use that charge an annual fee. Any possible long term damage to your score via higher utilization should be minimal and matter even less as your high balance card is paid down. All other cards, leave open, so they can continue to minimize utilization and contribute to length of credit history calculations indefinitely.

Regardless of the credit strategy you choose, it should be clear by now that any long-term score raising-and-protecting plan must include paying off that 0 percent APR card before the interest-free period ends. That will be your challenge. Fortunately, with an already-good score, the means to repay, and time on your side, you could soon be knocking on the 800 Club's door.

See related: Closing a new card won't undo credit score hit, 5 credit score oddities,Credit score impact of store card financing deals

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Updated: 12-16-2018