As people have vented their wrath at banks for raising the cost of credit cards — higher interest rates, new annual fees and lowered credit lines for a lot of loyal customers — a recurring theme of the discussion is that consumers will end up punishing themselves by closing their credit-card accounts in a fit of anger. As one reader of a post about credit-card fees commented last week,

I think that the system of credit scoring needs to be addressed. The banks and credit card companies are abusing the current scoring system. They know that that if the account is closed the consumers score will go down and that is something the consumer will not want.

After all, these scores are used not only by lenders to determine whether they’ll front you money and how much interest they’ll charge, but also by a lot of other people who want some insight into your trustworthiness: Auto-insurance companies, for starters. Potential landlords. Companies thinking about hiring you.

But is this a real problem? Will indeed your credit score drop if you tell your card issuer to stick their plastic somewhere other than an ATM? Part of the problem is that the methodology of determining your credit score is a secret formula held by FICO, a.k.a. Fair Isaac, the company behind the most widely-used credit scoring system in the US. Yes, they do explain the ingredients of that formula in general terms. Getting the nitty-gritty numbers, however, is like asking Coca-Cola for their secret recipe: They’ll admit it contains “natural flavors,” but don’t expect much more information than that. …read more