Jenafonika
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| Credit Score Question |
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I was wondering if it was more beneficial for my credit score to have many credit cards at zero balance or to actually close the credit cards that are not being used.
Basically, do credit card companies penalize you if you have many credit cards open but at zero balance?
Thanks
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Tue Oct 04, 2005 3:51 pm |
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Andrew
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It's really a complex question, because your score is computed from a variety of different measurements related to your credit record.
The inventor of the credit score, FairIsaac says "Don't close unused credit cards as a short-term strategy to raise your score."
Credit Score Info [PDF]
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Tue Oct 04, 2005 5:35 pm |
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sayyes
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Andrew's right.
I know there are several posts on this forum about credit scores and you can learn alot from searching for "credit score" here.
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Wed Oct 05, 2005 12:00 am |
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chiron
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Yes, search here, and Andrew's right, too. However, while the FairIsaac algorithm (there are actually many scoring formulas used, and FairIsaac alone offers several) does take a secret-sauce approach with rather vague guidelines on what to do with old or unused cards, it seems worthwhile to note a couple things in your situation.
One is that the time in years your credit history goes back is a large part of your score value, whichever algorithm is used. How much is only in the Colonel's cookbook, but say some portion of "credit history" is a major influence on the 25-30% typically agreed upon in this area of scoring. The end concept is that dumping a few zero-balance cards from the late 80's may be a poor choice, unless you keep at least one card from the same era on hand.
Revolving credit balance (carryover from month to month) is considered in your score calculation as well, but as long as all your maximum limits are being reported properly to the bureaus, a $0 figure will have little or no negative impact there. Where you may run into quibbling amongst credit consultants is over how many cards are too many. While this is a valid point (stick to from about 3-10 is the general chant?) it is in my mind more the potential extension of any group of cards that could affect a loan and possibly scores.
In other words, if you have 10 cards, each with 10k limits, a lender may look at that, look at the $350k home loan you're asking for, and give you a dent in their minds as a credit flight risk to coin a phrase, given you could in theory get over your head quickly and/or hit Vegas on a drunken spree and immediately head for retirement in the Carribean, bills unpaid.
However, in a perfect world people with large amounts of non-utilized credit, especially if those extensions are spaced over a period of years, are by default some of the more responsible parties among us. So, me being optimistic and hoping the world makes logical sense, none of that should be an issue either.
Hmm. Maybe search the boards on this topic, come to think of it...
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Thu Oct 13, 2005 7:45 am |
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