Is it better for your credit to have several credit cards with moderate limit, or one card with a high limit?
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shooter 1 wants to know:
I have zero debt. I also have several credit cards. I am wondering how it will affect my credit to request the highest limit for each card, or if I should cancel all but 2 and have those with high spending limits. Along the same lines, how does “available” credit affect one’s credit score negatively or positively? If I get a $50,000 limit on a card (with 0 balance) but say, go to buy a car, will I be denied because I have too much credit out there?
I have zero debt. I also have several credit cards. I am wondering how it will affect my credit to request the highest limit for each card, or if I should cancel all but 2 and have those with high spending limits. Along the same lines, how does “available” credit affect one’s credit score negatively or positively? If I get a $50,000 limit on a card (with 0 balance) but say, go to buy a car, will I be denied because I have too much credit out there?
Tagged with: Buy Car • Credit Cards • Zero Debt
Filed under: True Credit
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It’s better for your credit to have several cards with modern limit, as the FICO formula used by the credit bureaus consider the number of credit lines in good credit (by their type, e.g. revolving credit, installment loans etc). A lower number of credit lines will result in a lower score (since you’ll have more limited history).
Obviously that assume all of them are in good standing – if they’re not, the picture changes dramatically.
As to the total credit, what they look at is which percenage of your total credit are you using, and for that it’s irrelevant how it’s distributed between the credit lines.
I always thought that the total amount of available credit is the critical factor, regardless of the number of cards. And, of course, the ratio of used to unused credit.
Nevertheless, I would try to get rid of a couple of cards, but when you close a card make sure you increase the limit with the card(s) that you keep. Close one card every two months or so. Stick with the card with the lowest interest rate, the lowest annual fee and the best perks.
The longer you haven’t touched that large credit line, the better your score will be when it comes to buying a car.
It’s overall credit card debt to overall credit limit. There is a point where too many cards and/or too much available credit will adversely affect your credit score but I think that would be really large numbers.
Personally, I don’t recommend keeping a stack of credit cards just for the sake of having them. Keep the two oldest major credit cards that do not have an annual fee. Only keep gas or store charge cards if you have some special reason for them. Otherwise, close all the extras — via letter requesting written confirmation the account is closed.
All those extra cards are just asking for problems. You have to secure and monitor them. They don’t really add that much to your credit score.